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A strong rise in new business and a jump in export orders led business activity in Saudi Arabia's non-oil output higher in May. While this led to firms building their inventories at the fastest rate for 18 months, they largely operated with existing workforces as backlogs continued to decline, a survey showed on Thursday.
The seasonally adjusted IHS Markit Saudi Arabia Purchasing Managers' Index (PMI) rose for the second month to 56.4 in May from 55.2 in April. The reading indicated a robust improvement in business conditions that was the fastest recorded since January. Any rise above the 50 mark indicates expansion.
David Owen, Economist at IHS Markit, said: "Saudi Arabia's non-oil sector continued to enjoy a strong recovery in May, led by a sharp rise in output that was the quickest since the end of 2017. Firms often cited growth in new business and a notable pick up in export sales."
A rise in the Output Index had the largest positive influence on the headline figure in May, the report said. The latest expansion in output was the quickest since December 2017, as 30 percent of surveyed businesses stated a rise in activity during the month.
Job growth stalls
Despite the rapid rise in new orders, new employment stalled during May. Job numbers increased for the second straight month, but the pace of expansion slowed from April and was only slight, IHS Markit said. A decline in backlogs proved that firms still had spare capacity after the downturn in output last year.
“Most firms continued to operate with unchanged workforce numbers, suggesting a focus on boosting productivity back to pre-COVID levels," Owen said.
However, inventories of purchased items were expanded at the quickest pace for one-and-a-half years, indicating that firms are expecting future new business growth. Adding to this, business activity expectations improved to the highest for three months in May, as firms were hopeful of a further recovery from the pandemic over the course of the upcoming year.
“That said, there was still some uncertainty about the future, with the degree of optimism remaining much weaker than the series trend,” the report cautioned.
Overall expenses faced by non-oil firms increased in May, with the rate of inflation quickening for a fourth month in a row. Rising purchase costs were largely behind the increase, as businesses noted that stronger demand and global supply shortages led to upwards pressure on raw material prices. Higher fuel and staff costs were also mentioned by some companies. As a result, output charges ticked up for the second month in a row.
(Reporting by Brinda Darasha; editing by Seban Scaria)
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