Why Saudi private sector is growing very fast?

Qatar Gulf News – Qatar, Doha, August 3rd 2016. The expansion of Saudi Arabia’s non-oil private sector picked up speed in July, with the strongest improvement in business conditions since last November, according to a new report. Output growth was particularly sharp, while new orders also increased at a faster pace, said data from the Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI).

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The improvement in demand was broad-based across domestic and international markets as exports rose for the first time in four months, the PMI showed. Job creation and higher input stocks were among the other factors supporting overall growth. Rising from 54.4 in June to 56.0, the headline PMI posted the highest reading in eight months during July. That signalled a notable acceleration in growth, particularly in the context of the trend over the past year (55.3). That said, the rate of improvement in business conditions remained below the long-run series average (58.5). Jean-Paul Pigat, senior economist at Emirates NBD, said: “July’s survey is encouraging as it suggests Saudi Arabia’s non-oil economy continues to expand at a healthy clip. Growth momentum is slower than last year, but is holding up better than many had expected in an environment of low oil prices.”

Underpinning growth of the non-oil private sector as a whole was a sharp rise in output at the start of the third quarter. The rate of expansion was the quickest since September 2015. Panellists attributed higher activity to incoming new work resulting from marketing initiatives.

Reports of improving demand were supported by survey data, which showed new business rising to the greatest extent in eight months during July. Firms suggested that promotional efforts and high quality goods and services had contributed to stronger demand. Solid growth of output and new business convinced companies to hire additional staff in July as the rate of job creation was the fastest since last October, albeit moderate overall. Purchasing activity also increased more quickly. According to respondents, input buying was raised in order to accommodate new projects. Stocks of pre-production items rose as a result, with the rate of inventory building accelerating to a ten-month high.

On the price front, the rate of input cost inflation was little-changed since June and muted relative to the series average. The lack of cost pressures fed through to charges, which were broadly unchanged. Some firms offered discounts in the face of greater competition.

Sources: QGN, Gulf Times, Gulf News, ArabianNews, CAYE Global News, Reuters, BBC News