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How non-oil private sectors in UAE + Saudi + Egypt performed in September: Purchasing manager indices (PMI) tracking non-energy sectors in the three countries told a mixed tale in September. The UAE and Saudi Arabia held above the 50.0 mark threshold, while Egypt saw a sharp decline in its headline PMI, driven by a surge in output charges, a decline in new orders, and an increase in inflation rates.
REMEMBER- The all-important 50.0 mark is the threshold separating contraction from growth. Anything above 50 denotes expansion, while anything below indicates contraction.
First up, UAE: Non-oil business activity grew at its slowest pace in three years in September, due to a dip in new orders and weak employment rates, as well as rising costs and capacity constraints, according to S&P Global’s UAE Purchasing Managers’ Index (pdf). The country’s headline PMI slipped to 53.8 in September from 54.2 in August, marking its second-lowest reading in three years, yet still remaining above the 50.0 threshold separating growth from contraction.
Slower gains in new orders and business activity contributed to the slowdown in growth, while exports continue to grow at its second-lowest pace in 18 months on the back of rising competition and “caution towards the business outlook.
Backlogs are continuing to pile up: A surge in backlogs — registering a four-month high in September — led to a climb in purchases, with firms using up their new purchases to meet existing commitments. Customs duties delaying input deliveries were also cited as a major contributor to slower supplier performance.
A hiring freeze? Firms saw a decline in employment rates on the back of a declining new order growth, signaling their weakest employment growth since December 2022.
Price pressures remained high: Input price inflation persisted, driven by higher shipping, fuel, and technology expenses. As a result, businesses raised their selling prices for the fifth consecutive month, and at the fastest rate since early 2018, as they continued to pass increased costs onto customers.
A watchful stance: Business sentiment shifted to a more cautious outlook for the coming year, with expectations now “at their lowest since early 2023,” S&P Senior Economist David Owen said. However, lighter cost pressures in September compared to the last few months “could be a sign that the inflationary trend will lessen,” offering some relief to firms, Owen added.
Over in Saudi Arabia: Non-oil business activity in the Kingdom continues to grow, driven by a sharp increase in output, new orders, new exports, employment, despite a slight decrease in purchasing growth, according to the Riyad Bank Saudi Arabia PMI (pdf). The seasonally-adjusted headline figure climbed to 56.3 in September from 54.8 in August, remaining well above the 50.0 mark that separates growth from contraction. September marks the second consecutive month Saudi’s PMI figure has risen.
New orders + output driving growth: The uptick was mainly driven by a surge in new orders and output as businesses tapped stronger domestic demand and rolled out new projects across a number of sectors. New clients and marketing efforts also contributed to the boost in orders, with export orders also seeing marginal growth. “Rising output levels not only enhance the competitiveness of Saudi businesses but also drive forward developments aimed at expanding private sector participation in the economy,” said Naif Al-Ghaith, Chief Economist at Riyad Bank.
Hiring was also up: Firms ramped up hiring efforts to keep up with new orders and reduce workloads. Nevertheless, shortages in skilled workers and weather-related disruptions meant that backlogs grew marginally in September.
Firms’ purchasing activity eased: A sharp uptick in inventories among non-oil firms led some firms to “reassess” their purchasing, leading purchasing growth to hit a three-year low. Supplier delivery times improved at their slowest rate since August 2023.
The outlook is positive: Upward momentum in the non-oil private sector signals wider business confidence, “showing a healthy environment to increase investment, job creation, and overall economic stability,” Al-Ghaith adds. Besides hedging against a fall in oil markets, greater output in the non-oil private economy also provides a basis underpinning long-term growth, Riyadh Bank’s chief economist adds.
Meanwhile, in Egypt: Non-oil activity in Egypt declined markedly driven by rising price pressures and a surge in inflation rates, with output and new orders witnessing a sharp decline, while employment rates and purchasing activity maintaining an upward tick, according to S&P Global’s Egypt PMI (pdf). Egypt’s headline purchasing manager’s index dipped to 48.8 in September, down from 50.4 in August, reaching its lowest point since April and indicating a fall in business conditions across the non-oil private sector.
Cost inflation accelerated to a six-month high resulting in high output prices in 3Q 2024. Input prices climbed to their sharpest pace since March, with some firms reporting increased raw material costs and weak currency rates, resulting in a rise in selling prices, although at a slightly slower pace than in August. New orders scaled back due to dampened demand from domestic markets, driving slow business activity.
The impact of rising output charges: “A further solid increase in output charges suggests that price-related sales reductions may continue, despite evidence that firms are trying to limit the impact on customers,” Owen said.
Firms are maintaining their August upward trajectory, indicated by an increase in purchasing activity and stock levels. Employment rates also rose for the third month running.
Sentiment remains somewhat optimistic in the UAE + Egypt: Despite the UAE’s more cautious outlook for the coming year, the country hopes lighter cost pressure in September could ease the inflationary trend. Over in Egypt, expansions across firms indicate a possible bounce back from the dip in September across the non-oil sector in 4Q 2024.
KSA remains confident: Saudi Arabia remains confident about growth across the non-oil private sector and in the face of challenges of a fluctuating oil market. “By expanding output across key non-oil industries, Saudi Arabia is better positioned to navigate the challenges of oil market fluctuations, ensuring a more sustainable and diversified economic future,” Al-Ghaith added.
