How UAE + Saudi + Egypt’s non-oil private sectors performed in July: Purchasing manager indices (PMI) tracking non-energy sectors in the three countries told a mixed tale in July. Saudi Arabia and the UAE held above the 50.0 mark threshold, but softening output underpinned growth in both countries, causing market optimism to falter. Egypt saw a slight drop in its headline PMI, buoyed by new export orders, employment rates and reduced backlogs.

REMEMBER- The all-important 50.0 mark is the threshold separating contraction from growth. Anything above 50 denotes expansion, while anything below indicates contraction.

First up, Saudi Arabia: Non-oil business activity in the Kingdom continued to grow, at a soft but steady pace in July, as output levels, purchasing activity, and new exports rose, despite a lull in new orders and growing competitive pressures, according to Riyad bank Saudi Arabia PMI (pdf). The headline reading dipped to 54.4 in July, from 55.0 in June, falling for a third month straight.

New order intakes increased at their lowest rate in some 2.5 years on the back of growing input costs, while selling prices dropped due to strong internal competition and capacity pressures caused by an ongoing heatwave. Output growth eased to its lowest level in six months and new orders hit their lowest mark in two and a half years despite demand conditions pushing up sales and output growth.

Purchasing activity surged at the steepest rate in three months, buoyed by growing client demand as firms look to solidify their stock inputs. Employment figures also rose modestly in July in a bid to maintain backlogs in the Kingdom’s non-oil sector despite capacity stresses due to the heatwave. Delivery speed continued to improve. Balanced input prices, cost of purchases and staff costs eased inflationary pressures, by stabilizing output prices.

On a positive note: New exports also grew, indicating that “Saudi businesses are successfully penetrating international markets, which bodes well for diversification of the economy,” Riyad Bank Chief Economist Naif Al Ghaith said in the report.

Over in the UAE: Non-oil business activity rose at the slowest pace in almost three years in July, due to competitive conditions, rising input prices and growing backlogs, according to S&P Global’s PMI (pdf). The country’s headline reading dipped to 53.7 in July, from 54.6 in June, yet still remained firmly above the 50.0 neutral threshold.

Backlogs surged in July due to supply and administrative lags, causing inventory volumes to slightly fall for the first time in almost four years, as firms dug into their inputs to avoid project overruns. Businesses also noted that increased competition drove up backlogs, as non-oil firms took on more than they could handle to secure returning clients.

Purchasing expenses were steep: Inflation rates grew at its fastest rate in two years, and selling prices rose, as non-oil companies experienced a spike in input costs during June. Businesses linked the rising prices to high material price costs and higher wages. Employment eased to a six month low.

The silver lining: New orders rose, as demand conditions remained stable, and new exports grew at the second-strongest rate in nine months. Delivery times continued to improve at a strong rate. Generally, the UAE’s non-oil sector is “expanding solidly and could be strengthened if companies start to get on top of their workloads,” said S&P Senior Economist David Owen.

Egypt told a mixed tale: Non-oil activity marginally dropped in July, as output and new orders fell slightly resulting in businesses capping their purchasing rates, yet rates still maintained a near-two-year high after reaching peak levels in June, according to S&P Global’s Egypt PMI (pdf). Egypt’s headline purchasing manager’s index dipped slightly to 49.7 in July, from 49.9 in June, settling right below the 50.0 mark and reaching its second-highest level in three years.

Output rates fell at a minor rate, as sales weakened due to building price pressures and inflationary pressures loomed over businesses. New orders marginally dropped, with some 9% of businesses surveyed reporting a decline in sales and conversely 7% reporting an increase. Purchasing rates fell at a four month low, as companies adjusted their purchases to reflect a dip in orders.

New export orders were on the rise, growing for a third consecutive month, as international demand expands. Backlogs fell at their fastest rate in over a year and employment rates rose, as businesses remain optimistic that conditions will improve.

Inflation overshadowed the non-oil market: Input prices spiked for a second month, hitting the highest rate since March, with 14% of firms reporting a rise in prices. Selling prices only modestly increased in return.

Sentiment was upbeat for a change in Egypt: Non-oil firms forecast a boost in activity over the next 12 months, as market optimism grew. Inflationary pressures were “subdued compared to heightened rates in recent years,” Owen said. Yet, a “slight pick-up in input cost inflation in July” could leave firms uncertain about prices picking up again in the future.

While it took a dip over in the UAE + KSA: The degree of confidence in both the UAE and KSA took a hit in July, due to softened output and input growth rates. Nevertheless, in both countries the year-ahead outlook remained positive, with businesses banking on high client demand, healthy work pipelines and incoming investments.

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