Saudi Arabia: Non-oil business activity moderates sharply at the outset of the year
The Purchasing Managers’ Index (PMI) sponsored by Emirates NBD and produced by IHS Markit fell from 57.3 in December to 53.0 in January. Although January’s reading was the lowest print since the survey began in August 2009, the index remains above the 50-threshold that indicates expansion in business activity in the non-oil producing private sector.
January’s figure reflects much softer growth in both output and new orders following the introduction of value-added tax (VAT) on 1 January. That said, the impact of VAT introduction will likely be temporary as firms continued to increase their staffing levels, while business sentiment climbed to an eight-month high. Although cost burdens increased across the non-oil economy due to fuel subsidy cuts and the implementation of VAT, selling prices only rose at a marginal pace due to strong competitive pressures. Khatija Haque, Head of MENA Research at Emirates NBD, adds that, “The softness in the January PMI survey was fairly broad-based, with faster employment growth being the main highlight. Wage increases, fuel subsidy cuts and the introduction of VAT is evident in the higher input costs and staff costs components of the survey in January. However, firms were the most optimistic about their prospects in the coming 12 months than they have been since May 2017.”