Non-oil business activity in Arab world's largest economies improved in April


Business activity in the non-oil private sector economies of Saudi Arabia and the UAE continued to improve in April, although at a softer pace, as output and new orders rose markedly amid rising client demand.

The headline reading for the seasonally adjusted S&P Global Saudi Arabia Purchasing Managers’ Index hit 55.7 in April, indicating a strong momentum in business conditions.

While lower than the kingdom's March PMI reading of 56.8, non-oil business activity remains in expansion territory.

A reading above the neutral level of 50 indicates growth while one below it points to a contraction.

“The Saudi Arabia PMI signalled another strong improvement in the health of the non-oil sector in April, but one that also showed the first signs of price pressures swaying clients' spending decisions,” said S&P Global economist David Owen.

Businesses attributed the rise in output levels at the start of the second quarter to growth in new client orders. The expansion in output was broadly in line with the average reported in the first quarter of 2022.

New domestic and foreign business inflows also rose at a slower pace. However, some clients remained hesitant amid global price volatility and increased economic uncertainty, survey panellists said.

“Despite firms’ worries, price pressures were somewhat less pronounced in April, as compared with March, led by a moderating increase in purchase costs, which slipped back from the 19-month high the previous month,” Daniel Richards, Mena economist at Emirates NBD said in a note.

Average input costs for businesses increased as surging energy prices and supply shortages — due to Russia's war in Ukraine — affected raw material prices, according to the latest data.

“Indeed, a further marked uptick in output prices during April, in light of rising commodity prices and global inflation fears, risks dampening sales further in the coming months,” Mr Owen said.

The world is facing a commodities super-cycle, with oil prices rising sharply and further stoking inflation around the globe. Crude prices rose by 67 per cent last year and have surged further this year after Russia's military assault in Ukraine, which threatens to disrupt global energy flows.

Brent, the benchmark for more than two thirds of the world’s oil, climbed to slightly under $140 a barrel this year before retreating. Japan’s largest lender MUFG Bank expects oil prices to average $135 a barrel this year.

The conflict in Eastern Europe is further muddying the global economic outlook. The International Monetary Fund has lowered its growth forecast for the global economy to 3.6 per cent in 2022 and 2023 — a downward revision of 0.8 percentage points and 0.2 percentage points, respectively, from its January forecast.

Although coronavirus-driven uncertainty still poses headwinds, economies in the six-member GCC economic bloc have made a strong rebound on the back of swift testing and inoculation programmes.

The UAE recorded 225 new Covid-19 cases on Sunday, with no pandemic-related deaths reported since March 7.

UAE non-oil companies also maintained a robust level of activity growth in April, although at a softer pace, supported by client demand and a sharp rise in exports.

The UAE PMI index reading fell slightly to 54.6 in April, from 54.8 in March.

Non-oil output rose sharply at the start of the second quarter as companies continued to benefit from increased new orders and project work.

The expansion in activity was the fastest registered since December last year, with close to a quarter of businesses surveyed reporting an increase in output since March.

“In the near term, the non-oil economy is still expanding at a robust rate, and output rose to a 2022 high last month as 23 per cent of survey respondents reported an expansion in activity,” said Mr Richards.

“We have forecast non-oil sector growth of 4 per cent this year, from an estimate of 5.3 per cent last year.”

New order growth also remained strong in April, with some panellists reporting a continuation of sales related to Expo 2020 Dubai, which ended on March 31.

The sharp increase was particularly marked on the exports side, with the latest data pointing to the fastest growth in new foreign business since January 2021.

“For now, businesses continue to enjoy strong sales growth, which allowed them to increase their output at the fastest rate in 2022 so far, in April,” Mr Owen said.

However, cost pressures remained at the highest level for more than three years, driven by rising fuel and material prices, forcing businesses to raise their selling charges for the first time since July last year, he said.

Businesses also looked to boost their purchasing activity and stocks in April after a lull in March. Buying levels rose last month at their second-fastest pace since August 2019.

Businesses remained confident about continued sales growth boosting output levels over the next 12 months. However, survey panellists highlighted inflationary pressures, supply concerns and price-led competition as headwinds.

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