Business activity in Saudi Arabia improves in December despite Omicron concerns

Business activity in Saudi Arabia’s non-oil private sector economy continued to expand in December despite a slowdown in growth as concerns about the rapid spread of the Omicron coronavins variant softened demand.

The seasonally adjusted purchasing managers' index – a gauge designed to give a snapshot of operating conditions in the non-oil private sector economy – slipped to 53.9 in December from 56.9 in November in the Arab world’s largest economy.

However, it remains well above the neutral 50 level. Although the reading was the lowest since March last year, it indicated “a solid improvement in operating conditions” across the kingdom's non-oil private sector economy, IHS Markit said in its latest PMI survey on Tuesday.

The three-point drop was mainly driven by the new orders sub-index. The rise in new business was sharp, but softer than recent months as several panellists underscored suspension of orders by companies amid slowing customer demand due to Omicron concerns.

The slowdown in new order growth was more pronounced across manufacturing and services amid cancelled bookings. However, new business from abroad rose modestly albeit at a weaker rate, the survey showed.

The “dull note” for Saudi Arabia’s PMI at the end of the year was mostly “due to concerns about the global spread of the Omicron variant”, David Owen, an economist at IHS Markit, said.

Coronavirus infections have risen around the globe in the past few weeks after the detection of the Omicron variant in South Africa in November.

The number of cases worldwide now exceeds 292 million, with deaths rising above 5.4 million, according to Worldometer, which tracks the pandemic. More than 255 million people have recovered from the infection.

The rapid spread of the more infectious variant has forced countries, particularly in Europe and Asia, to impose fresh restrictions to curb the pandemic, raising questions on demand growth and the pace of global economic recovery this year.

However, despite global headwinds, output levels in the kingdom expanded at a marked pace, growing at the level achieved in August. The slowdown in demand also meant that more companies had time to complete orders, leading to a faster decrease in outstanding work.

The pace of job creation in the kingdom's non-oil private sector economy also slowed fractionally as companies had sufficient capacity to deal with their workloads.

By contrast, efforts to expand purchasing activity were extended in December as input-buying rose at the same pace in in October and November. The survey data also pointed to a solid rise in input prices across the non-oil economy, which businesses polled said were linked to higher raw material prices and transport costs.

Meanwhile, Egyptian non-oil businesses saw a softening of price pressures in the final month of 2021, as the PMI Index rose to 49 in December from 48.7 in November to reach a four-month high. The index edged closer to the 50 neutral threshold and was above the survey's long-run average of 48.2.

"The latest Egypt PMI gave increased confidence that inflationary pressures peaked earlier in the fourth quarter and are now beginning to soften," Mr Owen said.

"Input prices rose at the slowest rate since September, while the month-on-month drop in inflation was the quickest recorded for more than three years. Firms highlighted a weaker impact from raw material costs as step-downs in global commodity prices helped suppliers to adjust their own fees."

Egypt's annual inflation in urban parts of the country rose to a 20-month high of 6.6 per cent in September, but eased to 6.2 per cent in November, said statistics agency Capmas.

An improvement in tourism activity supported new business, as well as a sharp rise in export orders that was the strongest since February. However, output and new business volumes declined in the latest survey period, with survey panellists continuing to highlight weak customer demand on the back of higher selling prices.