How MENA countries’ non-oil private sector performed in February:Purchasing manager indices (PMI) tracking non-energy sectors in the UAE, Saudi Arabia, and Egypt, told a mixed tale in February. UAE and KSA remained in expansion amid strong demand and business activity, while Egypt remained in contraction — hampered down by regional disruptions.

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

First, the UAE: The UAE’s non-oil private sector continued to grow in February as business conditions, greater volumes of new orders, and a sharp rise in output levels buoyed the headline figure to 57.1 picking up from 56.6 in January, according to S&P Global’s PMI (pdf). The figure signaled a sharp upturn in overall operating conditions. Higher new business, strong client activity, greater marketing and development work led to an uptick in the figure.

Input purchases + costs grew: UAE’s overall supplier performance remained positive with firms reporting quicker distribution of inputs when requested. Input purchases also continued to grow sharply with firms bulk buying materials in a bid to replenish their stocks. A solid increase in overall input costs was felt by firms linked to material, prices, and wages, leading to price cuts being the strongest in nearly three and a half years, with firms feeling the need to retain market share and provide disc. to buyers. Input prices also rose solidly for its second month, however firms did not provide price cuts in a bid to beat competitors, according to S&P.

Impact from the Red Sea is still evident: Red Sea shipping disruption fed into transport delays with vendor performance improving only marginally as volumes of backlogged work rose at its sharpest rate in almost four years, S&P Global Market Intelligence senior economist David Owen said. The UAE’s overall supply chain performance improved at its softest rate since July — but nonetheless improved, reflecting that “impact on vendors is so far limited,” Owen added.

The silver lining: UAE firms went on a hiring spree to support workloads and to offset backlog growth, leading to employment levels growing at its fastest pace since May.

Shifting over to Saudi Arabia: KSA’s headline PMI buoyed to 57.2 in February, up from 55.4 in January, according to Riyadh Bank Saudi Arabia’s PMI (pdf). The figure bounced back in February — following a mild slowdown and two-year low in January — on the back of strong growth of output and new orders driven by the services and construction sector and an upsurge in new export orders, Riyad Bank chief economist Naif Al Ghaith commented.

Business activity and purchasing activity also continued to remain strong as Saudi firms ensure a steady inflow of inputs amid the demand outlook, and to secure disc. prices from suppliers, paving the way to the sharpest increase in inventory levels since August 2022. Firms also witnessed improvement in delivery times and picked up the pace of hiring to the sharpest in eight years, paired with accumulating their stocks led to them cutting their outstanding work.

Inflation has been tempered: Input price inflation softening in February to its slowest since July 2023 and selling price inflation also cooling marginally. Purchase prices and staff costs increased at a slowest pace in some five to six months, with some firms turning to pass their higher costs onto their customers, while others opted to slash their fees amid competition, leading to charge inflation remaining softer than cost increases, according to the PMI. “The rate of output inflation softened as a consequence of a highly competitive market,” Al Ghaith added.

UAE + KSA remain upbeat: UAE firms remained optimistic for the non-oil sector's growth over the coming year, with outlook ticking up to a four-month high, as firms anticipate activity, demand, and profits, to continue to strengthen in the future. Although business expectations remain positive, there are concerns of a crowded market which linger and appear to dampen sales growth further, as reflected with new orders rising at their softest rate — suggesting output growth could begin to slow, Owen commented. While, Saudi firms expectations buoyed amid supply chains remaining in good health, supported by increase in inventories and an increase in employment, strengthening optimism for demand trends in the year ahead.

Things aren’t looking good in Egypt: Egypt’s non-oil activity contracted at its sharpest rate in over a year amid a worsening FX crisis, a steep drop in customer sales, and an increase in input costs — all exacerbated by the Suez Canal disruptions, according to S&P Global’s Egypt PMI (pdf). Egypt’s PMI dropped to 47.1 down from 48.1 in January. Firms in Egypt’s output and new orders fell amid a worsening demand environment weighed down by rising price pressures and supply-side challenges. Weak demand was prevalent across all sectors monitored with wholesale and retail firms suffering the most. Worsening demand also led to firms scaling back their output levels rapidly, with firms also noting a worsening of order book volumes in February.

The Red Sea impact was felt strongly: Egypt’s non-oil economy appeared to “suffer markedly” in February with disruptions halving Suez Canal revenues, impacting FX inflows, increasing inflationary pressures, and hindering Egyptian suppliers, Owens said. The disruption also contributed to the greatest lengthening of supplier delivery times since June 2022, and lowered output as panelists attribute added weaker tourism revenues on the back of the continued Israel-Gaza war. Low output led to decreased purchasing activity as firms aim to avoid holding excess stock.

Inflation continues to strain Egypt’s non-oil sector: Inflationary pressures ramped up to its highest in 13 months amid reports of declining Suez Canal trade, strained further by USD and FX shortages. Higher import prices caused the highest selling charges in 13 months with companies passing rising purchasing costs onto clients. Unlike the UAE and KSA, Egypt did not witness an increase in hiring activity, as there was a drop in workforce numbers.

Businesses in Egypt were not so upbeat: Althoughfirms' confidence improved marginally from January, they maintained a relatively subdued outlook for business activity over the next year, amid anticipation that the economic conditions will persist and remain challenging for the foreseeable future. Faster cuts in employment and purchasing suggest that they are planning for a prolonged reduction in output, Owen noted attributing the mild expectations to this.

Looking for the rest? Lebanon’s PMI will be out later here today, while Qatar’s will be out tomorrow and our coverage will follow.