UAE NON-OIL SECTOR EXPANDS QUICKEST IN FIVE YEARS

▶ Saudi Arabia’s PMI climbed to 57.2 in February amid jump in new orders

Business activity in the nonoil private sector economies of Saudi Arabia and the UAE expanded at a brisk pace in February, with the pace of growth hitting an almost five-year high in the Emirates.

The seasonally adjusted Riyad Bank purchasing managers’ index (PMI) rose to 57.2 in February, from 55.4 in January, staying well above the neutral 50 mark that separates growth from contraction.

The rise signals a marked improvement in operating conditions across the kingdom’s nonoil private sector economy, as the rate of growth hit its highest level since September 2023.

Businesses surveyed reported a sharp rise in output, driven by improving client demand and tourism activity in the largest Arab economy.

New work inflows also rose at a sharper pace than in January, but remained softer than in the final quarter of 2023.

While businesses reported client additions and stronger market conditions, some companies said competition remained strong within the domestic market.

Export orders from the kingdom also recorded a modest rebound in February.

The “upturn reflected the continued thriving of non-oil activities” in the kingdom, said Riyad Bank chief economist Naif Al Ghaith.

Saudi Arabia’s non-oil sector expanded 4.6 per cent in 2023, according to General Authority of Statistics’ flash estimates.

“The survey results also signalled expectations of a modest recovery in demand this year, driven by the acceleration of Vision 2030 projects,” Mr Al Ghaith said.

The data also indicated a faster increase in employment, among the sharpest recorded in the past eight years.

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 International Monetary Fund estimates.

But non-oil economic growth has remained robust on government initiatives as the kingdom opens up various sectors for foreign investment.

Meanwhile, the headline S&P Global PMI for the UAE climbed to 57.1 in February, up from 56.6 in January, broadly consistent with the growth trend seen since the start of the final quarter of last year.

The pace of growth in non-oil private sector’s output levels last month was the sharpest since the middle of 2019.

“The UAE PMI continued to signal strong upwards momentum in the non-oil economy at the start of 2024,” said David Owen, senior economist at S&P Global Market Intelligence.

“One of the PMI’s largest components, the output index, rose to its highest level since June 2019, pointing to a rapid expansion of business activity as firms look to take full advantage of strong market growth and maintain a competitive edge,” Mr Owen said.

The UAE economy is expected to expand 5 per cent this year, driven by a robust growth in the non-oil sector and an increase in foreign direct investment, Minister of Economy Abdulla bin Touq said last week.

The non-oil economy currently accounts for 73 per cent of the UAE’s gross domestic product, a “historic first for the country”, he said last month.

The country’s GDP expanded 3.7 per cent annually in the first half of 2023, as it continued to pursue its diversification goals, Mr bin Touq said in October.

The latest PMI data indicated that 38 per cent of surveyed companies in the UAE recorded a month-on-month jump in business activity, driven by new business and stronger marketing.

However, companies in the non-oil private sector of the Emirates “felt a degree of pressure on their supply chains” in February due to commercial shipping challenges in the Red Sea, the survey found.

But overall supplier performance was still positive.

Meanwhile, business activity in Egypt’s non-oil private sector last month contracted at the sharpest rate in more than a year, driven by a worsening foreign exchange crisis and a steep drop in customer sales.

The headline S&P Global PMI for Egypt hit 47.1 in February, from 48.1 in January, signalling “a solid deterioration in the health of the non-oil sector”.

The PMI continued to signal strong upwards momentum in the UAE non-oil economy at the start of 2024

DAVID OWEN

Senior economist at S&P Global Market Intelligence