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Saudi non-oil private sector strong output growth continues in July: IHS Markit

Saudi non-oil private sector strong output growth continues in July: IHS Markit

Saudi Arabia non-oil private sector achieved further expansion in July 2021, according to data from the Purchasing Managers’ Index (PMI) by IHS Markit.

The report indicated that Saudi output grew at a sharp pace, underlined by a robust increase in new business inflows. Although, the headline seasonally adjusted Saudi Arabia PMI has inched down slightly in July to 55.8, nevertheless, the reading pointed to a strong improvement in operating conditions that extended the current run of growth to 11 months.

According to IHS Markit, Output in the non-oil sector maintained a sharp pace of expansion in July, as about 27% of surveyed businesses reported an increase in activity, linked to strengthening client demand and a loosening of pandemic-related measures.

The report indicated that rising demand from domestic and overseas clients supported the upturn, which some firms linked to competitive pricing strategies.

David Owen, Economist at IHS Markit, said that sustained rises in demand should help the economy move closer to full capacity over the second half of the year. However, Owen indicated that a drop in business expectations to its joint- weakest since June 2020 illustrated growing doubts that this will be a smooth ride.

On the flip side to these largely positive findings, jobs data reflected a less favourable view of the non-oil sector in July.

IHS Markit data indicated that hiring growth weakened to a fractional pace, as only small proportion of firms reported needing additional staff. In addition, backlogs were reduced solidly, suggesting a wide gap between demand and full capacity in spite of a sharp increase in new orders in recent months.

Surveyed companies were also less optimistic that activity would rise over the following year. Only 10% of firms provided a positive forecast, while around 87% forecast no-change. This brought overall business expectations to the joint-lowest since June 2020.

Meanwhile, latest data pointed to a sharp increase in purchasing activity as input requirements grew in line with higher new orders.

Furthermore, companies stock levels also expanded, while wait times on inputs improved for the fourth month running.

The rise in average output charges at non-oil companies accelerated to the fastest since November 2020. Firms widely mentioned that this was due to higher sales and rising prices for raw materials and fuel.

Higher raw material costs were often attributed to ongoing global supply shortages during July. As a result, overall input prices continued to rise, although the pace of inflation slowed to the softest recorded since March.

Indicator of Saudi Vision 2030 progress

Since the launch of the Saudi Vision 2030 by Crown Prince Mohammed bin Salman in 2016, Saudi Arabia’s non-oil revenues have increased more than 200%.

In order to develop and diversify the economy and reduce dependence on oil, Saudi Arabia launched Saudi Vision 2030; built on several economic and financial reforms, which aim to transform the structure of the Saudi economy into a diversified and sustainable economy focused on enhancing productivity, increasing the contribution of the private sector, and empowering the third sector.

Since the launch of the Vision, Saudi Arabia has succeeded in implementing many initiatives and structural reforms to enable economic transformation. This transformation included several major efforts centered around enhancing local content, national industry, launching and developing promising economic sectors, and an enabling dimension aimed at maximizing the role of the private sector and SMEs, and enhancing the sustainability of public finances. These structural shifts have contributed to strengthening the Kingdom’s economy and its ability to combat the Covid-19 pandemic in 2020. It is expected that the pace of this structural transformation will continue in the coming years, in light of a number of investment initiatives under the Public Investment Fund and leading companies.

The Kingdom has witnessed economic and financial structural reforms which promote economic growth while preserving stability and financial sustainability. This is evident in the improvement of the business environment in the Kingdom, and the continuous endeavor to enable the private sector to support economic diversification and overcoming obstacles to make it more attractive to invest in previously untapped sectors.

Accordingly, the International Monetary Fund (IMF) said last month that non-oil recovery that started in the second half of 2020 is expected to continue with non-oil growth projected at 4.3% in 2021.

The IMF confirmed that the ambitious reforms within the framework of Vision 2030 contributed to supporting the Saudi economy in successfully overcoming the repercussions of the double crisis from the coronavirus pandemic and the decline in oil prices, pointing out that the economy entered the battlefield of the pandemic armed with strong non-oil growth, strong safety margins and positive momentum in various reforms.

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