Saudi Arabia’s private sector business activity shrinks further in June

Dubai: Saudi Arabia’s Purchasing Managers’ Index (PMI) data for June showed non-oil private sector firms in the kingdom signalled another reduction in business activity.

“June data highlighted another difficult month for Saudi Arabia’s non-oil private sector economy, with cautious business and consumer spending patterns widely reported to have held back new order intakes,” said Tim Moore, Economics Director at IHS Markit.

At 47.7 in June, the headline seasonally adjusted IHS Markit Saudi Arabia PMI fell from 48.1 in May and was below the neutral 50.0 threshold for the fourth consecutive month.

Subdued demand

Survey respondents noted disruption to business operations and subdued customer demand amid the coronavirus 2019 (COVID-19) pandemic.

“The headline PMI signaled a sustained deterioration in overall business conditions although the speed of the downturn remains less steep than in March and April,” said Moore

Shrinking workloads and concerns about the near-term business outlook resulted in a further round of job cuts in June. The rate of decline in staffing numbers accelerated since May and was the fastest since the survey began in August 2009.

Data showed the downturn in business activity was steeper than in May, but still less severe than the survey-record seen during April. Lower volumes of non-oil-private sector output were primarily attributed to subdued economic conditions and a subsequent lack of new work in June. Companies signalling growth mostly cited strong demand for digital services and essential consumer products.

Cautious spending

Total new work fell for the fourth month in a row during June. Survey respondents commented on cautious spending patterns among business and consumer clients, despite efforts to stimulate demand through price discounting. Export sales remained on a sharp downward trajectory in June, which was overwhelmingly linked to logistical challenges amid international travel restrictions.

Suppliers’ delivery times also lengthened sharply in June and to a greater extent than recorded during the previous month. Despite ongoing supply chain pressure and reports of greater transportation costs, latest data revealed a fractional overall decline in average purchasing prices.

Staff costs continued to decline in June, but at a slower pace than the survey record seen during May.

Outlook concerns

Survey respondents widely commented on the need to lower overheads and improve cash flow by reducing payroll costs. Weak demand conditions and concerns about the near-term outlook also led to a survey-record dip in employment numbers.

“Efforts to reduce overheads and concerns about the year ahead business outlook led to another drop in staffing numbers in June, withthe pace of job shedding the fastest since the survey began in August 2009,” said Moore.

June data signalled that year-ahead business expectations turned negative for the first time since this index began in July 2012, although the degree of pessimism was only marginal. Companies anticipating a reduction in business activity during the next 12 months mostly commented on rising economic uncertainty and highly subdued demand.