In May, business activity in the non-oil private sector of the Arab world’s two largest economies increased as rising confidence amid roll out of COVID-19 vaccination at pace boosted new orders and domestic demand.
For the second month in a row, the IHS Markit Saudi Arabia Purchasing Managers’ Index increased to 56.4 in May from 55.2 in April, several points more than 50 which indicates that the economy is expanding, while anything below hints at a contraction.
According to the survey, the reading indicated a strong improvement in business conditions, the fastest recorded since January. In May, the kingdom’s non-oil economy grew due to an increase in the output index. The most recent increase in output was the fastest since December 2017.
Mr. David Owen, an economist at IHS Markit remarked that “Saudi Arabia’s non-oil sector continued to enjoy a strong recovery in May, led by a sharp rise in output. Firms often cited growth in new business and a notable pick up in export sales.”
Easing pandemic restrictions
Firms surveyed in the kingdom attributed a rise in customer orders to improved market conditions following the lifting of pandemic-related restrictions. As global demand strengthened, export orders also increased to the highest level since the end of 2015.
In May, businesses in the kingdom raised inputs for the eighth month in a row to meet rising demand, with the rate of growth accelerating to a 17-month high.
“Most firms continued to operate with unchanged workforce numbers, suggesting a focus on boosting productivity back to pre-COVID levels. On the plus side, inventories were increased at the quickest pace in a year-and-a-half as firms prepare for a further recovery in demand over the coming months,” Mr. Owen added.
As companies hoped for faster recovery from the pandemic, business sentiment in the kingdom soared to its highest level in three months.
Improvement in business conditions
The IHS Markit UAE PMI posted to 52.3 in May, the sixth month in a row, indicating a slight improvement in business conditions. The index fell slightly from 52.7 in April, but it was still the second-fastest growth rate since August 2019.
In May, business activity in the UAE was increased to suit the overall rise in sales. Mr. Owen stated that the non-oil private sector showed more signs of improvement in May, with new orders mostly fueled by domestic sales.
The employment number fell slightly in May, but with backlogs rising and demand strengthening, “it is hoped that businesses will start to raise their staffing levels soon to support overall growth,” he pointed out.
Expectations of increased business activity in the UAE over the next 12 months, owing to the country’s continued recovery from COVID-19, raised business sentiment in May for the sixth month no a trot to its highest level since July 2020.
Saudi Arabia and the UAE have loosened pandemic-related limitations as they push forward with their COVID-19 vaccine programs.
Egypt’s PMI rose to 48.6 in May from 47.7 in April, underpinning a sixth consecutive monthly decline in the health of the non-oil sector, led by a lower in output and new business.
The total reduction in business output in the Arab world’s third-largest economy was the smallest since February, and firms polled were more optimistic about future output, as business sentiment rose to the strongest level in more than three years.
“Business expectations data offered a glimpse of a positive future, as firms were at their most optimistic since early 2018 and expectant of a strong recovery in business conditions to follow soon,” Mr. Owen added.