Saudi Arabia: PMI falls to record low in April
May 3, 2018
The Purchasing Managers’ Index (PMI) sponsored by Emirates NBD and produced by IHS Markit dropped from 52.8 in March to 51.4 in April, the lowest print since the series began in August 2009. However, the index remains above the 50-threshold that indicates expansion in business activity in the non-oil producing private sector.
April’s decline was driven by a contraction in new orders growth, which, according to firms, was caused by weak demand and “unpredictable economic conditions”. Foreign demand was indeed weaker, as new export order growth declined for the third straight month. Concurrently, output growth moderated in April, contributing to the lower headline print. In addition, inventory stocks dropped for the first time in the series history, and backlogs of work decreased, both pointing to subdued demand. On a more positive note, employment growth picked up despite weaker new business growth.
On the price front, input costs rose, likely due to higher purchasing costs. Selling prices, however, dropped for the third consecutive month as firms offered discounts to spur demand.
Daniel Richards, MENA economist at Emirates NBD, commented on the weak activity in the non-oil private sector thus far this year, stating:
“That nonoil private sector activity has slowed so sharply this year is surprising to us, particularly when we consider 1) the expansionary budget that was announced for 2018 to support growth in the non-oil sectors and 2) the unexpectedly high oil price year-to-date, which usually drives stronger non-oil sector activity. One possible explanation is that budget execution so far this year has not been as strong as we might have expected […] Another consideration is that uncertainty following the November anti-corruption crackdown has weighted on businesses activity and investment in the private sector.”
Saudi Arabia Fixed Investment Forecast
FocusEconomics Consensus Forecast panelists see fixed investment rising 1.5% in 2018, which is unchanged from last month’s estimate. For 2019, the panel expects fixed investment to increase 4.6%.