Non-oil private sector activity remained strong across GCC countries and Egypt in August

Non-oil private sectors in the UAE, KSA + Qatar dipped in August, while Egypt’s contraction remained marginally flat: Purchasing Manager Indices (PMI) tracking non-oil private sectors in UAE, KSA, Qatar, and Egypt told a mixed tale in August, with most countries in expansion, except for Egypt, which remains in contraction — despite showing some signs of potential recovery.

Refresher: The all-important 50.0 mark is the threshold separating contraction from growth. Anything over 50 denotes expansion and anything below indicates contraction

Growth in the non-oil private sector in the UAE eased in August to its slowest pace since February, according to S&P’s Global UAE PMI (pdf). The PMI reading came in at 55.0, down from July’s 56.0, but remaining well above the 50.0 mark separating growth from contraction, signaling an improvement in operating conditions. Business activity and confidence increased and were recorded as the strongest since covid-19, paving the way for an increase in purchasing activity to a four-month high. This also drove a substantial increase in input stocks as expected sales growth continued to improve.

Most PMI indicators gave positive signals, including an improvement in inventory building, job creation and improving supply chain conditions, Senior Economist at S&P Global Market Intelligence David Owen commented. The improvement in supplier lead times improved to its strongest levels since July 2019, with most vendors responding positively to requests for faster deliveries — with the strongest record of improvement since July 2019 according to S&P. While employment levels modestly increased, backlogs continued to grow in size as capacity pressures continued to rise.

Saudi Arabia’s PMI also eased at its slowest pace in a year for a second consecutive month to 56.6, down from July’s 57.7, according to Riyadh Bank Saudi Arabia’s PMI (pdf). This came on the back of increased market competition that hampered sales growth and affected exports. Despite that, the reading remains firmly in the growth territory, above the long run trend average.

Inflation pushed an uptick in purchase prices at the fastest rate in just over a year, linked to a sharper uptick in purchase prices. Despite that, strong demand persisted, affecting vendors’ performance and slowing down the improvement in lead times to the slowest in 19 months, the survey said.

“The Kingdom’s non-oil activities have managed to expand despite the continuous challenges arising from input prices and the high interest rates,” Chief Economist at Riyad Bank Naif Al Ghaith commented. Increased competition also encouraged firms to increase the quantity and stocks of products, Al Ghaith said.

Qatar’s non-energy sector in August also inched down slightly from 54.0 to 53.9, though continued to indicatestrong expansion on the back of increased output, new orders, employment and purchasing, according to Qatar Financial Centers PMI (pdf). Purchases and output increased further, as the retail and service sectors drove growth. Supply chains also continued to improve as average lead times fell for the sixteenth successive month — a record sequence for the survey — while inventories rose only slightly, suggesting that companies managed stock levels efficiently, according to S&P.

Cost pressures in Qatar were broadly in line with the long-run average in August, although staff costs rose the most since February while output prices fell moderately for the fourth month running.

Egypt’s contraction remained flat, at its highest level in two years: Egypt’s PMI reading remained unchanged for its second month, according to S&P Global’s Egypt PMI (pdf). The country’s PMI remained at 49.2 in August, below the 50.0 mark separating growth from contraction, with the rate of contraction remaining subdued.

While non-oil companies in Egypt recorded “modest drops” in activity and new orders, there continued to be broad-based declines in demand on the back of weak domestic and global economic conditions. Heightened cost inflation constrained output, while a weak exchange rate, coupled with raw material supply issues and wage pressures led to the fastest increase in business expenses for five months, S&P writes. Firms also saw a sharp reduction in input buying compared to one month ago, citing weaker orders, supply issues and higher input price inflation.

On the brighter side: Hopes for a market recovery were reflected in an improvement in business confidence to its highest level in five months, while inventory building improved as average lead times fell, S&P writes.

Outlook for UAE + Qatar was positive all round: Surveyed firms signal UAE’s non-oil sector outlook was “highly positive,” Owen said, with surveyed firms signaling that this was supported by rising new order inflows, greater tourism and increased investment. Qatar’s outlook also remained positive in August, with manufacturers, wholesalers and retailers also remaining positive.

But not so much for Saudi Arabia + Egypt: Only Saudi Arabia’s outlook weakened amid competitive pressures, with the respondents less optimistic about future activity, with the lowest level of confidence recorded since June 2020. Over in Egypt, outlook improved but was still among the lowest recorded in the series history, with only 9% of respondents positive that output will grow over the coming year, and many expressing concern over potential recessionary conditions.