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How non-oil private sectors in Saudi Arabia + Egypt performed in November: Purchasing manager indices (PMI) tracking non-energy sectors in the two countries told a mixed tale in November. Saudi Arabia held well above the 50.0 mark threshold driven by healthy customer demand, while Egypt saw a more moderate increase in its headline PMI buoyed by softer input and output inflation growth.
REMEMBER- The all-important 50.0 mark is the threshold separating contraction from growth. Anything above 50 denotes expansion, while anything below indicates contraction.
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First up, Saudi Arabia: Non-oil business activity rose at its sharpest pace in 16 months in November despite a rise in input costs, driven by an increase in new orders, output, purchasing and employment, according to Riyad Bank Saudi Arabia PMI (pdf). The Kingdom’s headline PMI spiked up to 59.0 in November from 56.9 in October, increasing for the fourth consecutive month.
New orders + output driving growth: The uptick in non-oil activity was driven by stronger new order inflows compared to last month and healthier output as businesses banked on strong domestic demand. New customers, enhanced investment spending and marketing efforts also drove up the rise in orders. Export orders also witnessed growth, after a sluggish few months. Firms’ purchasing activity rose at its quickest pace since March on the back of new orders, as companies remain confident that demand volumes will continue to pick up.
Hiring was also up: Firms ramped up hiring efforts to match new orders, with the rate of employment growth hiking up at its second-fastest pace in over ten years. As a result, backlogs were reduced this month, albeit only marginally.
Inflation is still persistent: Purchasing costs jumped up at the fastest pace in over four years due to wider regional geopolitical tensions, which firms say impacted material prices and resulted in higher transport costs. Selling prices rose for the second month running, driven up by a spike in purchasing and hiring. In turn, wages experienced a particular rise, surging up at the fastest pace of pay inflation in over ten years.
Over in Egypt: Egypt’s non-oil activity declined, albeit at a slower pace, for the third consecutive month, pulled down by stagnant new orders, weak demand, drops in employment and reduced output, according to S&P Global’s Egypt PMI (pdf). Egypt’s headline purchasing manager’s index grew marginally to 49.2 from 49.0 in October.
Input rates grew at the slowest rate since July, with price pressures falling to a four-month low despite strong USD rates. This is largely attributed to a lower wage growth rate, as overall staff pay increased at the slowest rate in 16 months. Output price inflation rose marginally and at its softest pace in four months.
Sluggish new orders + outputs dragged down the index: New order volumes dipped, for the four month running, due to persistently weak customer demand. Output rates also fell, resulting in cases of excess stocks at companies and a reduction in purchasing activity.
On the bright side: The rate of non-oil sector contraction eased in comparison to last month, indicating that “business conditions are close to stabilising,” S&P Global Senior Economist David Owen said. Firms’ in the manufacturing sector reported an uptick in new work, offsetting declines in the construction, wholesale and retail sector.
Hiring rates slipped marginally, falling at the fastest pace since February, after growing for the last four months. Firms’ attributed this to a drop in sales volumes, which has led to weaker confidence and caused companies’ to not replace voluntary leavers.
Sentiment remains somewhat optimistic: Easing rates of inflation growth and declines in new orders indicate a possible bounce back from the dip in September, with Egyptian firms verging on meekly positive regarding output expectations for the coming year. Nevertheless, “reductions in purchasing activity and employment hint that firms are not expecting capacity levels to be challenged too much in the months ahead,” Owen said.
KSA firms remain confident that rising demand volumes will continue to persist across the non-oil market over the coming year, allowing for the market to remain resilient despite a fluctuating oil market. As such, patterns of expanding “output and demand, reflects the increasing capacity of non-oil sectors to contribute to economic activity independently of oil price fluctuations,” said Riyad bank Chief Economist Naif Al Ghaith.
