Non-oil private sector activity across GCC and MENA countries show positive signs of growth in May

Non-oil private sector activity in Qatar grew at ever-faster rates, while UAE and KSA saw slower growth as Egypt’s shows positive signs of improvement: Purchasing Manager Indices (PMI) tracking non-oil private sectors in UAE, KSA, Qatar, and Egypt were a mixed bag but with all-round hopeful notes. Domestic demand continued to drive growth in UAE and KSA but at a slower pace than previous months. Qatar, on the other hand, saw ever-faster growth. Egypt’s contraction slowed for the second time in as many months with further evidence that demand-corroding inflation was on the mend.

Non-oil private sector in the UAE in May remained in growth territory, albeit at a slower pace than in April, as local demand continued to drive new orders and robust supply chains kept cost pressures in check, according to S&P Global’s UAE PMI (pdf). The UAE’s PMI reading in May came in at 55.5, lower than the 56.6 posted for April. Despite being at a three-month low, the index is above the long-run average of 54.2.

Remember: The all-important 50 mark is the threshold separating contraction from growth. Anything above 50 denotes expansion and anything below indicates contraction.

Business growth mostly came from rising domestic demand: Boosted sales in May buoyed the index, with new orders only slightly below April’s 17-month record, the report observed. Firms cited new clients, marketing campaigns, and boosted sales from travel and tourism as driving new orders. Growth was generated by domestic clients, as export orders remained flat. Despite greater business activity and the fastest rate of hiring since July 2016, backlogs continued to accumulate. New orders and expectations that costs will remain stable led to the best business outlook since October 2021.

Saudi Arabia’s non-oil private sector in May also extended its growth, but at a slower pace than April, according to the Riyad Bank’s Saudi Arabia PMI (pdf). The kingdom saw its PMI reading for May ease to 58.5, slightly below April’s 59.6 but above the 50.0 threshold and the reading’s long-run 56.9 average.

New orders grew, but at a slower pace than April’s eight-and-a-half-year record, the report said. The slowdown from April comes despite recent gains in sales to foreign clients. Surveyed respondents cited a better economy, increased travel, tourism, and investments as drivers for new orders. Business activity also increased but at the slowest rate seen so far in 2023. There was also anecdotal evidence for vendors making quicker deliveries, indicating an improvement in supply chains which in turn helped drive an upturn in inventories at the quickest rate since August 2022.

Greater hiring also helped firms erode Saudi businesses’ backlogs. All in all, businesses retained a strongly positive outlook for the year ahead, citing improving market conditions, a robust sales pipeline, and supportive government policies. Nevertheless, a more competitive environment meant that sentiments were lower than April, falling to their lowest in one year.

Activity in Qatar’s non-oil sector accelerated for the sixth time in seven months, according to the Qatar Financial Center (QFC) PMI (pdf) released yesterday. Qatar’s PMI came in at 55.6, higher than April’s 54.4. The latest number is the highest since July 2022 and is well above the long-run average of 52.3, with the output, new orders, employment, and purchasing components of the index all seeing faster growth.

Growth in output and new orders boosted the index, with hiring and stocks of purchases also contributing to the improvement, the report said. New orders grew at their fastest rate in ten months, with businesses reporting new contracts with new and retained customers as well as new product offerings and sales from tourism. Hiring rose at its fastest rate since July 2022, which helped firms further erode their backlogs of activity. Despite an increase in demand for production inputs, supply chains managed to cope with the upturn and lead times saw further cuts. Outlook for the coming year was also the most hopeful in three months.

Business activity in Egypt is also showing some signs of improvement: Contraction in Egypt’s non-oil private sector slowed to its softest pace since February 2022 in May, according to S&P Global’s Egypt PMI (pdf). The country’s PMI rose to 47.8 in May from 47.3 in April, marking a second consecutive month of improvement but remaining below the 50.0 mark that separates growth from contraction.

Softer price hikes helped the picture: “Companies signaled that input cost pressures were again much softer than at the beginning of the year, as a period of stabilization in the EGP versus the USD helped to cool import markets. This led to another relatively soft rise in selling charges, providing some hope that consumer price inflation will fall again in May,” said David Owen, senior economist at S&P Global Market Intelligence, who also remarked that despite the index remaining in negative territory, recent gains indicate that “current economic headwinds were beginning to dissipate.”

Demand conditions on the up? Output levels continued to decline but at their softest rate since the start of 2021, while new orders dropped at their slowest rate in seven months. Business activity came close to stabilizing in the manufacturing and services sectors. Business intakes in the service sector rose for the second time in three months, suggesting that consumer demand could finally be on the mend.

Nevertheless, outlook remains among the lowest on record, with only 6% of the survey respondents expecting an increase in output over the next 12 months.