Breaking down non-oil private sector performance in KSA, Kuwait, and Egypt: Purchasing Manager Indices (PMIs) tracking non-energy sectors reported varying results in the three countries in October, with Saudi Arabia and Kuwait posting further expansions, while Egypt remained in the red territory despite improvement.

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

Saudi Arabia-

The non-oil private sector in Saudi Arabia extended its expansion in October, hitting its fastest level since January and the second-fastest level since September 2014, according to the Riyad Bank Saudi Arabia PMI (pdf). The seasonally adjusted figure rose to 60.2 in October, up from 57.8 in September, yet it remains below January’s 60.5 peak. The acceleration is enhanced by improved operating conditions due to elevated demand and hiring momentum.

New orders inched up for the third month in a row during October, with 48% of the surveyed businesses citing the uptick to an improvement in sales, while only 4% reported a decline. “This improvement was supported by favorable economic conditions, a larger customer base, and higher levels of foreign investment, particularly from GCC and African markets.” Riyad Bank Chief Economist Naif Al Ghaith said.

Output levels saw a sharp increase in October, boosted by new orders’ uptick on the back of rising demand. “The rise in demand encouraged firms to expand production and workforce capacity at the fastest rate since 2009, as businesses expanded capacity to meet new workloads” Al Ghaith noted.

Purchasing activity picked up at the start of 4Q, evidenced by higher workloads and efforts to expand inventories. The growth rate of input stocks reached its highest level in seven months, according to the report. October saw a reduction in lead times, with firms citing “strong vendor relationships,” according to the report.

Job creation accelerated in October to hit its quickest rise in nearly 16 years, further driving the expansion of businesses and output activities. The sharp rise is a reflection of Saudi Arabian companies “expanding their production capacity to meet rising demand,” Argaam Investments’ Head of Specialized Research Ahmed Ramzy told EnterpriseAM.

Input cost pressures heightened in October, lifted by a steep rise in wage costs from salary revisions and bonus payments, in addition to higher costs of imported raw materials. Businesses opted to raise their selling prices at the fastest rate since May 2023.

Business sentiment: Non-oil firms maintained their positive outlook for the year ahead during October, albeit at a lower degree from that recorded in the previous month. Increased demand along with the ongoing projects are cited as key drivers for the overall positive outlook. Yet, some firms fear that competitive pressures may halt future growth prospects.

LOOKING AHEAD- The non-oil sector could achieve an annual growth rate of around 5% in 2026, should the PMI figure remain above 58 points until the end of the year. Ramzy states. “With inflationary pressures expected to emerge in the first half of next year due to rising input costs, the key challenge will be to strike a balance between sustaining growth and preserving price stability as the economy transitions from a government-driven expansion to one led by private-sector dynamics” he adds.

KUWAIT-

Non-oil activity in Kuwait expanded at a quicker pace in October, boosted by higher growth in output and new orders, according to S&P Global’s PMI (pdf). The country’s headline PMI slightly rose to 52.8 in October, up from 52.2 in the previous month. October reading puts Kuwait’s non-oil private sector above the 50.0 mark for healthy growth for its 14th consecutive month.

Fears of a slowdown dissipate? “The October PMI data for Kuwait helps to allay any fears that the recent growth slowdown was going to result in a more prolonged soft-patch, with rates of expansion in output, new orders, employment, and purchasing all accelerating during the month,” S&P Global’s Andrew Harker wrote in the report.

New orders and output rose at a faster and stronger level during October, compared to the rates observed a month earlier. This was fueled by “marketing activity and the provision of good quality products at competitive prices,” according to the report. Output has maintained an upward trend since February 2023, whereas export orders accelerated but at a slower pace than in the previous month.

Job creation inched up at the highest rate in four months during October, yet it remained limited. As a result, outstanding business accumulated at the start of 4Q this year, and backlogs of work inched up at the steepest rate in four months, according to the report. “The rise in employment was still only slight, however, and insufficient to prevent a further build-up of outstanding business. Firms will likely therefore look to address this in the coming months so that customer requirements can be met in a timely manner.” Harker added in the report.

Purchasing activity and inventory holdings expanded in October at a much greater pace than that witnessed in the previous month, with the expansion being powered by elevated new orders and output.

Input cost pressures accelerated sharply in October, driven by faster increases in purchase prices and staffing. The surveyed participants also cited maintenance, marketing, staff, transportation, and utilities, as key drivers of input cost inflation. In turn, output inflation accelerated slightly for the eighth month in a row, in a bid from firms to protect their profit margins.

Positive sentiment: Business confidence regarding activity in the year ahead strengthened for the second month in a row and was the highest since June.

The GCC at large: “The non-oil activity in the Gulf region remained robust, but it is expected that it will not last any longer, particularly for Saudi Arabia”, Capital Economics’ James Swanston wrote in a research note seen by EnterpriseAM. “Weaker oil export receipts will reinforce the need for fiscal consolidation and will more than offset any boost from looser monetary policy, resulting in softer non-oil GDP growth,” he added.

MEANWHILE IN EGYPT–

Egypt’s non-oil private sector contracted at a slower rate in October, in a sign of a potential recovery after a long period in the red territory, according to S&P Global’s latest Purchasing Managers Index report (pdf). The country’s headline figure improved 0.4 points to 49.2 from the month before.

Despite the improvement, the sector is still in red, having stayed below the 50.0 threshold that separates growth from contraction for the last eight months. The sector has only pushed up into the green twice since November 2020 and has a series average of just 48.2.

The decline in output volumes hit its slowest pace in eight months, which was driven by improvements in the manufacturing sector outweighing continuing downturns in the services, retail, and construction sectors.

New orders also saw mild improvement under improved market conditions, but again it was manufacturing driving the good news, being the only sector to register an increase in order volumes.

“Egypt PMI stayed above its long-term trend in October, pointing to a y-o-y GDP growth rate of about 4.6%. At the same time, overall business activity moderated at its slowest pace in eight months, while demand indicators are picking up, hinting that momentum in domestic markets has improved slightly at the start of the fourth quarter,” S&P Global Senior Economist David Owen wrote.

BEHIND THE NUMBERS- While Egypt’s whole economy PMI hit a three-month high in October, new export orders hit their highest level since January, Capital Economics’ James Swanston wrote in a research note seen by EnterpriseAM. “This might reflect the signing of the Israel-Hamas ceasefire which, while still fragile, provides an upside risk to shipping through the Red Sea and Suez Canal, bolstering Egypt’s exports and further utilizing its external advantage of a weaker EGP,” he added.

But ratcheting up the pressure on businesses were input costs rising at their fastest rate in five months, driven in no small part by the quickest jump in wages since October 2020. Cost pressures were also fueled by higher supplier prices and increased fuel costs. “Rising cost pressures could slow things down if companies struggle to absorb these costs in the months ahead,” Owen cautioned.

Despite heightened cost pressures, firms raised their selling prices at a softer pace from that observed month earlier, in an attempt to absorb much of the cost increase to boost sales. “The output price component declined to a four-month low, adding to our view that disinflation will resume and pave the way for two more interest rate cuts by the Central Bank of Egypt this year,” Swanston said.

Employment remained broadly stable in October, with businesses reporting a slight increase in hiring, marking the third jump in job creation within four months.

Looking ahead, the business community is more upbeat — or at least less pessimistic — than they have been recently, expecting an uptick in demand and overall economic conditions.

“Overall, the report conveys some optimism among businesses and relative improvement in expectations about business activity in October … While we see growth in manufacturing is great news, our main concern is that some inflationary pressures like strong wage revisions could be here to stay, and could feed later into price levels,” Thndr Securities’ Esraa Ahmed told us.