Business conditions in Saudi Arabia’s non-oil sector saw robust growth in December, driven by a substantial increase in output and the fastest rise in new businesses  in 12 months, a survey from HIS Markit.

The seasonally-adjusted IHS Markit Saudi Arabia Purchasing Managers’ Index (PMI) rose to its highest reading for 13 months in December, up from 54.7 in November to 57.0, signalling a sharp improvement in operating conditions.

David Owen, Economist at IHS Markit, said: "The Saudi Arabian non-oil economy is well on the path to recovery, according to December's PMI results, which indicated the strongest output growth since November 2019. Moreover, the PMI is now (just) above its series trend level, suggesting the economy is growing at a relatively normal pace, albeit with a lingering output gap to recover.

The rise in the headline index was driven by marked increases in both the output and new orders sub-components, with the latter seeing the sharper uptick.

The latest data signalled the fastest upturn in new business for a year.

"According to respondents, business activity has been helped by falling COVID-19 case numbers in the fourth quarter of 2020, despite other major economies suffering a 'second wave'. The roll-out of a vaccine meanwhile led to increased optimism that demand will strengthen over the coming year,” Owen said.

With sales rising, and improving business optimism, firms sharply raised both their purchasing activity and stocks of inputs in December.

However, the arrival of some inputs was delayed, as suppliers' delivery times increased.

Firms reported that they still had excess capacity after the downturn seen earlier in the year. As a result, with cost-cutting efforts still widespread, businesses reported a slight fall in employment.

"On the negative side, the latest expansion did not support a rise in job numbers during December. In fact, employment fell slightly as firms diverted spending towards inputs and noted that current capacity still allowed them to clear both new and outstanding work," Owen said.

The PMI is based on data derived from indicators for new orders, output, employment, suppliers’ delivery times and stocks of purchases. Any figure greater than 50.0 indicates overall improvement of the non-oil private sector.

Meanwhile, business expectations for 2021 improved further owing to a strong optimism supported by the global roll-out of COVID-19 vaccines and hopes that this will lead to a strong economic recovery.

Notably, the degree of sentiment rose to its highest level seen throughout 2020, HIS Markit said.

(Writing by Brinda Darasha; editing by Seban Scaria)

(brinda.darasha@refinitiv.com)

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