The contraction in our non-oil private sector deepened in October as rising prices tamped down demand and output fell thanks to the ongoing shortage of FX, according to S&P Global’s latest PMI index (pdf) out yesterday. The index posted its “sharpest deterioration” in five months to reach 47.9 in October, down from 48.7 in September.

The gauge has been in contraction territory for nearly three years: Non-oil private sector activity has now remained below the 50.0 threshold that separates growth from contraction for 35 consecutive months.

Soaring inflation + raw material shortages = falling output: Production registered “a slower but still solid contraction” as falling sales, sustained material shortages, and price pressures drove down production in the manufacturing, construction, wholesale, and retail sectors, while the services sector recorded modest growth.

PMI participants made “their fire reductions in staffing … since July” on the back of a “faster decline in new business volumes … supply shortages, and inflation, said David Owen, senior economist at S&P Global Market Intelligence. The rate of layoffs was the fastest since February on the back of a “quicker drop in sales,” the report said.

Remember: Inflation hit another all-time high of 38% y-o-y in September thanks to surging food costs and the impact of a series of devaluations. Data for October should be released on Thursday, 9 November.

Cost pressure stabilizing? “While cost pressures are still sharp, they have moderated somewhat over the course of 2023, providing some respite to firms,” Owen said. October’s PMI figure is higher than in the first five months of the year and higher than the whole of 2022, bar February and January.

Optimism, of a sort: On the back of a gradual — if bumpy — stabilization of cost pressure, “business confidence picked up in October to the highest level in the year-to-date, implying that output could improve over the coming 12 months,” Owen said. Businesses are “moderately hopeful of a recovery in economic conditions,” the report said, with 13% of respondents sharing a positive outlook for the coming year.

The release also received attention internationally:Reuters.

FROM THE REGION-

  • UAE PMI hits four-year high: Non-oil private sector activity in the UAE accelerated in October at its fastest pace since June 2019 on the back of strong demand, according to the PMI (pdf). The index rose to 57.7 from 56.7 during the month, driven by new orders — which accelerated at their fastest pace in four years — and stronger business confidence.
  • Saudi PMI surges: Growth in the kingdom’s non-oil private sector picked up last month with the headline PMI rising to a nine-year high of 58.4 in October, up from 57.2 the month before. A rise in new business boosted market expansion and job creation volumes, according to S&P's report (pdf).
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