Breaking down non-oil private sector performance in KSA, UAE, Egypt: Purchasing Manager Indices (PMIs) tracking non-energy sectors highlighted varying results in the three countries in August, with Saudi Arabia recording a robust improvement, while the UAE saw its non-oil private activities continuing to weaken but remained in green. Meanwhile, Egypt saw a modest contraction in its non-oil private activities.

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-

Non-oil business activity in Saudi Arabia showed a robust improvement in August, boosted by new orders, according to the Riyad Bank Saudi Arabia PMI (pdf). The seasonally adjusted figure registered 56.4 during the month, up from 56.3 in July. This reading, which is well above the 50.0 mark that separates growth from contraction, signals a solid expansion, though it remains notably below the year's peak of 60.5.

New orders rose at a slightly quicker pace, driving growth: New orders saw a slight uptick in August, lifted in part by a renewed rise in export sales. Firms attributed this improvement to more active marketing efforts in foreign markets, collaborations with clients in the GCC, and higher client demand. The growth was particularly robust in the service economy, with roughly three times as many firms reporting an increase in new orders as those who reported a decline.

Output growth edged up slightly following a recent dip: While output growth improved in August, the increase was only slightly better than the 42-month low recorded in July. Firms noted that better economic conditions, an increase in sales, and proactive marketing efforts were the main factors boosting business activity.

Purchasing activity and inventories saw a significant boost: Non-oil companies accelerated their purchasing activity in August at a faster rate than in July. This led to a four-month high in total inventories, as firms stepped up purchasing to meet current and future demand.

Employment also continued to increase steeply, with the pace of expansion being the softest since May, though it remained historically robust. “Employment trends remained broadly supportive, with firms continuing to expand their headcounts to meet current and expected demand,” Riyad Bank Chief Economist Naif Al-Ghaith wrote in the report.

Persistent cost pressures pushed selling prices up: Input costs rose sharply in August, mainly due to a robust increase in purchasing prices. “Input prices remained elevated due to persistent pressures on material, transport, and technology-related expenses. Wage pressures eased slightly, but firms still faced broad cost challenges. With an increase in demand and the above factors, output prices continue to grow, though increases were generally modest,” Al-Ghaith noted.

The outlook stays positive amid rising business sentiment: Following a 12-month low in July, output expectations improved in August. Firms' positive outlook was driven by several key factors: rising demand, ongoing projects, and supportive government policies.

UAE-

The UAE's non-oil private sector continued to weaken in August, with total sales intakes growing at the slowest pace in over four years. However, the S&P Global PMI (pdf) indicated an overall improvement in operating conditions, increasing to 53.3 in August from a 49-month low of 52.9 in July.

“The slowdown added to concerns of fading growth momentum and meant that output was increasingly reliant on backlogs of work,” S&P Global Senior Economist David Owen wrote in the report.

Output growth improved to a six-month high: The PMI reading was partially buoyed by a sharper expansion in output levels, which marked the fastest increase in activity for six months and was slightly higher than the survey's long-run trend. Firms noted that greater sales, ongoing project work, and growth in local markets were the key drivers of the increase in activity.

..but new orders saw a significant slowdown: The seasonally adjusted New Orders Index fell to its lowest level since June 2021, marking a softer rise in firms' sales. Companies cited competitive pressures and supply chain challenges, including customs delays, as key obstacles to completing sales.

Firms reduced purchasing for the first time in over four years: In response to softer demand, businesses cut their input purchases in August for the first time in just over four years. This pullback led to a contraction in stocks of purchases, as businesses' input requirements and appetite for inventory building were "sapped" by weaker sales growth.

Input price inflation quickened for the second consecutive month, reaching its highest level since February. This was primarily driven by wage increases, as many firms boosted salaries to address cost-of-living pressures and performance incentives. This came alongside a marginal uptick in employment.

In turn, firms raised their selling charges at the sharpest rate in five months. “While purchase price inflation came down in August, this was counteracted by an upsurge in wage inflation as recruitment activity remained healthy and cost-of-living rises drove salary demands higher,” Owen noted.

Business confidence hits its highest since October: Output expectations strengthened in August, with business confidence jumping to its highest level since last October. Many firms pointed to stable domestic economic conditions and solid client relationships as key factors to support growth in the year ahead.

MEANWHILE IN EGYPT-

Non-oil private sector activity in Egypt continued to contract in August, albeit moderately, as firms curbed output due to weak demand. The S&P PMI (pdf) recorded 49.2, marking a slight acceleration in contraction from July’s 49.5, but still above the survey’s historical average of 48.2. A notable easing of cost pressures helped to alleviate the squeeze on firms' margins.

Output and new orders fell for the sixth straight month: Companies saw declines in both output and new orders for the sixth consecutive month. This was directly linked to subdued customer demand, which firms attributed to weak economic conditions and persistent concerns about inflation. Although the rate of decline was faster than in the previous month, it remained slower than their long-run averages.

Firms scale back on purchasing even as hiring rises: In contrast with rising employment, companies remained cautious with their purchasing habits. The volume of inputs purchased fell for the sixth month in a row, leading to a further reduction in stocks.

“Employment was also up for the second consecutive month, after a lack of hiring in the first half of the year. However, staffing gains were only mild, while firms remained reluctant to commit to new purchases, particularly as confidence in the year-ahead outlook remains weak,” Owen wrote in the report.

Cost pressures eased significantly, narrowing the margin squeeze: Input cost inflation slowed to its weakest pace since March, reaching one of the lowest levels recorded in the past four and a half years. Firms cited rising import prices and staff salaries, with the latter being a response to higher living costs.

In response, companies raised their selling prices at the fastest rate since May, which narrowed the gap between input and output price inflation to its smallest in five months, helping to support margins.

Future outlook stays muted despite easing costs: “When assessing the year-ahead outlook, Egyptian non-oil companies remained relatively subdued. The degree of optimism was unchanged from July and only marginally higher than June's record low,” the report read.