Saudi Arabia’s private sector business conditions stabilise in July

Dubai: Saudi Arabia’s non-oil private sector stabilised in July signaling an improvement in business conditions at the start of the second half of 2020.

The latest Purchasing Managers’ Index (PMI) covering Saudi Arabia’s non-oil private sector economy rose from 47.7 in June to 50 in July, signalling overall stability in operating conditions.

“The July PMI scoring exactly 50 is a clear indication that the Saudi non-oil private sector is over the worst of the disruption caused by the pandemic, but remains some way from ‘normal’ business conditions. The latest figure is the highest since February but well below the long-run trend level of 57.1,” said Trevor Balchin, Economics Director at IHS Markit.

Resilient demand

The volume of new orders placed with Saudi non-oil private sector companies was broadly stable in July, following marked declines in the previous four months as the economy locked down to stop the spread of the coronavirus disease 2019 (COVID- 19) pandemic.

PMI data indicated resilient domestic demand, although new export orders continued to fall sharply. The level of total business activity neared stabilisation in July, with the Output Index improving to a five-month high. A number of firms reported that a pick-up in market conditions and greater marketing activity had supported business levels.

Job losses

Although market conditions showed signs of stabilising in July, firms continued to cut workforces on average. A number of respondents reported having to make layoffs to reduce overheads. Non-oil private sector employment fell for the fifth month running, albeit at a slower rate than June’s record. Average staff costs fell for a survey-record seventh consecutive month.

“Indicators for output, new orders and jobs all rose in July but fell short of the 50.0 mark, meaning that the PMI would have remained below 50.0 were it not for a solid rise in stocks of purchases and longer suppliers’ delivery times,” said Balchin.

Cost pressures remained broadly flat, however. Average input prices rose only marginally, having fallen in June. This general lack of cost inflationary pressure continued the trend seen through most of 2020 so far. Purchase prices rose for the second time in five months in July, but at a weak rate. Firms cut their own prices charged for the sixth consecutive month.

Improving outlook

The 12-month outlook for non-oil business activity improved in July, with the Future Output Index rising back above the 50 neutral mark to a five-month high. That said, confidence remained well below the series average, indicating that sentiment was relatively subdued. The volume of outstanding business continued to fall solidly in July.

“Although the 12-month outlook turned positive again, sentiment was subdued as the volume of outstanding work fell for a record sixth consecutive month. With capacity under-utilised, firms cut jobs for the fifth month running, while average wages and salaries dropped for a record seventh successive month in an attempt to control overheads.” Balchin.