NON-OIL BUSINESS ACTIVITY UP IN TOP GULF ECONOMIES

▶ Output in UAE increased at its fastest pace since December

Business activity in the nonoil private sector economies of Saudi Arabia and the UAE continued to improve last month, although at a softer pace.

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 50 indicates growth while one below it points to a contraction.

“The Saudi Arabia PMI signalled another strong improvement in the health of the nonoil 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 this year.

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.

Daniel Richards, Mena economist at Emirates NBD, said price pressures last month were less pronounced as compared with March.

This was largely due to “a moderating increase in purchase costs, which slipped back from the 19-month high the previous month”.

Average input costs for businesses increased as rising energy prices and supply shortages affected raw material prices, the latest data shows.

“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. Crude prices rose by 67 per cent last year and have increased 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 this year and the next – 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 last month, although at a softer pace, supported by client demand and a sharp rise in exports.

The UAE PMI reading fell slightly to 54.6 last month, 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 last month, with some panellists reporting a continuation of sales related to Expo 2020 Dubai, which ended on March 31.

“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.