Saudi PMI ticks down to five-month low in July

Dubai: Saudi Arabia witnessed slower increases in output and new orders, alongside a further weakening in business confidence, underlined a generally softer start to the third quarter, according to the latest PMI report from IHS Markit.

On the price front, data continued to signal a lack of inflationary pressures, with firms keeping charges unchanged amid little movement in overall costs and strong competition.

Saudi PMI ticked down to a five-month low of 56.6 in July. It marked the first time in 2019 so far that the index has fallen.

“Saudi Arabia’s non-oil private sector started the second half of the year growing at a healthy rate, according to the latest PMI data. However, the survey’s indicators for output, new orders and future expectations are all signalling some loss of momentum compared with the second quarter,” said Phil Smith, Principal Economist at IHS Markit and author of the report.

The report said the decrease in the headline index (from a 19- month high of 57.4 in June) was due in part to a slower increase in output. Though remaining strong overall, the pace of output growth across the non-oil private sector eased further from May’s recent peak to the weakest since February.

Firms that reported higher business activity often linked this to a sustained upturn in new orders. July marked the fifteenth month in a row in which an increase in new work has been recorded.

While the main factor behind the latest rise in new business was stronger domestic demand, July’s survey pointed to growing sales to clients abroad. Export orders rose for the fifth month in a row and at the quickest rate since February 2017.

This lack of pressure of capacity, combined with efforts to control costs, was reflected in only a marginal increase in employment.

“Amid a competitive environment for new work, which continues to restrict firms’ pricing power and encourage cost efficiency, extra staff recruitment was kept to a bare minimum,” said Smith.

Average staff costs meanwhile fell in July for first time in nine months. A lack of movement in purchase prices meant that input costs overall were little-changed. As such, businesses (on average) fixed their own prices at June levels.

In a further sign of the non-oil private sector losing momentum at the start of the third quarter, businesses reported lower optimism towards future output. Sentiment regarding the 12-month output weakened for the third month running to the lowest since August 2018.