Employment in the Arab world’s largest economy recorded its second highest increase in five years
Business activity in the non-oil economy of Saudi Arabia hit an eight-year high in February as output growth in the kingdom strengthened.
The reading for the Arab world’s largest economy on the Riyad Bank purchasing managers’ index rose to 59.8 in February from 58.2 in January, marking the fastest growth in non-oil private sector business conditions since March 2015.
The reading was well above the neutral 50 mark that separates growth from contraction.
A “sharp and accelerated” increase in business inflows boosted the non-oil sector,with total new orders rising to the greatest extent since September 2014.
“Despite tighter monetary conditions, demand and supply balance seemed robust and spurred by the ongoing projects around the kingdom,” said Naif Al-Ghaith, chief economist at Riyad Bank.
“Both employment and wages have increased, and employment recorded the second highest increase in five years to support expansion plans.”
Saudi Arabia’s economy grew 8.7 per cent in 2022, boosted by a sharp increase in the kingdom’s oil and non-oil sectors, according to initial government estimates.
Non-oil activities increased by 5.4 per cent during the 12-month period to the end of December, data from the General Authority for Statistics showed.
The kingdom’s preliminary estimates for 2023 indicate gross domestic product growth of 3.1 per cent.
The International Monetary Fund expects the kingdom’s economy to grow by 2.6 per cent this year and by 3.4 per cent in 2024.
More than 42 per cent of surveyed companies indicated that new orders had risen in February as market conditions improved and client numbers increased, according to the latest PMI survey.
Export orders also rose at a “quicker” pace.
The survey also showed that both employment and purchasing activity increased in February as businesses expanded inventories to a greater degree than in January.
Job numbers rose at the second-fastest rate in five years, as companies attempted to fill vacancies to meet future demand, the survey said.
Increased labour capacity meant that firms “continued to finalise orders on time and cut their backlogs”, though the rate of decrease was the softest for eight months, it said.
A rise in purchase costs played a role in accelerating an overall increase in costs, which led to inflation reaching levels higher than those seen in November 2022.
Companies raised the prices of their products and services as staff wages also continued to rise for the fourth straight month.
Saudi Arabia’s inflation rate for 2022 was estimated at 2.6 per cent and, according to preliminary forecasts, is expected at 2.1 per cent in 2023, Saudi Finance Minister Mohammed Al Jadaan said in December.
“Following a decline to an 11-month low in January, there was a significant acceleration in inflation for the prices of outputs, which remained strong overall,” the survey said.
The outlook for activity over the next 12 months was also strong, remaining above the average recorded in 2022.
Meanwhile, the PMI survey for Egypt, the Arab world’s third largest economy, recorded a slight improvement in operating conditions in February as the rate of output decline eased from the previous month.
The seasonally adjusted S&P Global Egypt Purchasing Managers’ Index reading rose to 46.9 last month from 45.5 in January, indicating a softer downturn. The index remained below the 50 neutral mark.
Demand in the country’s non-oil economy continued to be affected by high inflation and supply chain pressures, with job numbers falling at their fastest rate in nine months, the survey said.
However, inflationary pressures softened from January’s recent highs, it added.
Egypt’s inflation rose to 25.8 per cent in January a five-year high largely on rising food prices.
Last week, the country announced a package of wage and pension increases in its latest bid to cushion the effect of soaring prices after authorities raised domestic fuel prices by more than 10 per cent.
“After hitting a four-and-a-half-year high in January, the rate of purchase price inflation softened to the lowest since October, as firms suffered to a lesser extent from weaker exchange rates and rising import costs,” said David Owen, senior economist at S&P Global Market Intelligence.
“Similarly, the downturns in output and new orders were not as severe in February compared with the first month of the year, as higher prices led to a solid, but softer fall in new business intakes.
“Nonetheless, the sustained fall in demand led businesses to cut employment levels at the fastest rate in nine months, while input buying also decreased sharply,” he said.