SAUDI AND UAE NON-OIL ECONOMIES EXPANDED LAST MONTH

▶ New business intake boosted activity, January’s PMI data shows

Business activity in the nonoil private sectors of Saudi Arabia and the UAE expanded in January, although at a slower pace, amid continued growth momentum in the two largest Arab economies.

The seasonally adjusted Riyad Bank purchasing managers’ index slipped to 55.4 in January, down from 57.5 in December but remained well above the neutral 50-point mark that separates growth from contraction.

Though the headline PMI was at the lowest level in two years, the upturn remained strong across the monitored sectors. New business intake drove activity, but the rate of sales growth eased as several businesses reported slowing momentum amid competitive pressures.

The rise in new business also fuelled input demand as purchasing activity and inventory holdings expanded sharply in January, although the rate of buying growth was at an eight-month low.

Purchase prices for non-oil businesses in the kingdom rose at the sharpest rate since May 2012, driven by strong demand, higher material prices, greater supply chain risk and increased shipping costs amid the Red Sea crisis.

“The non-oil economy has continued to grow, despite challenges stemming from rising costs and interest rates. This resilience underscores the diversification efforts within the Saudi economy,” Naif Al-Ghaith, chief economist at Riyad Bank, said.

“Despite cost increases, output prices have remained low, signalling a high level of competitiveness in the market.”

This, however, suggests that businesses in the kingdom are absorbing some of the cost pressure rather than passing it on to consumers, a move aimed at maintaining market share, he added.

Saudi Arabia, the world’s biggest oil exporter, is transforming its economy under its Vision 2030 diversification agenda. The kingdom aims to reduce its dependence on oil, broaden its non-oil economic base and support domestic industries and job growth.

Saudi Arabia’s economy is projected to expand 2.7 per cent this year and 5.5 per cent in 2025, after contracting by an estimated 1.1 per cent last year due to cuts in oil output, according to the latest International Monetary

Fund estimates. Non-oil economic growth, however, has remained robust on government initiatives as the kingdom opens up various sectors for foreign investment.

In the UAE, the PMI trend also reflected a sharp but slower expansion in non-oil output in January.

The headline S&P Global UAE PMI dropped to 56.6 in January from 57.4 in December. The rate of growth was the slowest since August 2023, although it remained much stronger than the long-run average of the survey since 2009.

“While the UAE non-oil economy largely continued where it left off at the end of 2023, the PMI’s dip … in January pointed to a slight moderation of growth from the sector’s best quarterly performance in four-and-a-half years,” David Owen, senior economist at S&P Global Market Intelligence, said.

The rise in new business intakes was similarly marked in January, with about a quarter of survey respondents noting an increase from December.

“As was the case in December, the positive development was broadly domestic driven, as firms reported only a fractional increase in foreign new orders,” the survey said.

However, companies reported only a slight rise in their staffing levels during January. The pace of growth was the slowest in just over a year.

The UAE’s economy expanded 3.7 per cent annually in the first half of last year, Minister of Economy Abdulla bin Touq said in October. The UAE Central Bank increased its 2024 growth forecast for the country’s economy to 5.7 per cent, from its earlier estimate of 4.3 per cent, due to an expected rise in oil production this year.

The banking regulator also raised the UAE’s non-oil gross domestic product growth for 2024 to 4.7 per cent.

Businesses surveyed in the UAE pointed to growing supply-chain risks that led to delivery delays, as well as increasing shipping costs in January.

“The disruption to supply lines resulting from the Red Sea attacks appeared to have a modest effect on the UAE nonoil sector,” Mr Owen said.

In Egypt, the most populous Arab country, demand downturn quickened in January.

The headline S&P Global Egypt PMI dropped to 48.1, down from 48.5 in December, as the selling price inflation rose at the fastest rate in a year and drove a weakening of order books and contractions in output and purchasing.