Non-oil private sector continues to boom in KSA + Qatar, while Egypt’s contracts again: Purchasing managers’ indices (PMI) tracking non-oil private sector activity in March in Saudi Arabia, Qatar and Egypt released yesterday tell different stories of demand, market conditions, and business sentiment across the Middle East. While Saudi Arabia’s PMI rose amid a boost in exports, Qatar saw fast growth in output as purchasing prices continued to ease. On a more bleak note, Egypt’s PMI showed the 28th consecutive month of contraction in private sector activity.

Saudi Arabia’s non-oil sector continued to boom in March,albeit at a slightly slower pacethan February, according to Riyad Bank and S&P Global’s PMI for Saudi Arabia (pdf). PMI readings for March came in at 58.7, a notch below February’s near-eight-year high of 59.8. The index continues to track well above the 50.0 mark separating growth from contraction. “Supportive government policies, along with improving demand,” buoyed the sector despite global economic headwinds and uncertainty in the global economy, Naif Al Ghaith, chief economist at Riyad bank, said in his note.

Saudi firms saw a big rise in exports: Improvements in the kingdom’s industrial landscape helped manufacturers diversify their production and compete better in foreign markets, while the depreciating USD made Saudi exports more affordable in international markets battered by inflation, Al Ghaith said. Firms raced to make new hires and new purchases as business capacity remained tight, according to the survey.

Qatar’s non-oil sector was similarly upbeat, with the PMI coming in at 53.8 in March, up from 51.9 in February, according to Qatar Financial Centre and S&P Global’s Qatar PMI (pdf). The index rose for the fourth time in five months and stayed above the long-run trend PMI figure of 52.2.

Growth in output and new business were the main drivers for the increase in March, according to the report. Increases in customers, tourism, and investments, as well as successful marketing drives benefited firms across sectors, with the wholesale and retail services sectors registering the fastest increases in growth and new orders.

This was helped further by easing inflationary pressures, underscored by the negligible rises in purchase prices and the fact that prices for goods and services declined for the second time in three months, albeit marginally.

On the other hand, activity in Egypt’s non-oil private sector declined again, according to S&P Global’s Egypt PMI (pdf). The PMI reading dropped slightly to 46.7 in March from 46.9 in February, “rounding off a bleak first quarter of 2023,” according to Senior Economist at S&P Global Market Intelligence David Owen. Both output and new orders fell sharply, S&P said.

A “cost-of-living-crisis,” as S&P called it, continued to weigh heavily on Egypt’s non-oil private sector, with inflation reaching a five-and-a-half year high of 31.9% in February. Inflation has been driven largely by successive devaluations of the EGP, it said. Egyptian firms had to contend with lower demand and fewer new orders as local consumers saw their purchasing power dwindle.

Output also took a hit as Egyptian firms struggled to access key materials due to import controls and FX restrictions. This meant that some firms had to gnaw at their inventories to meet the gap in purchasing, resulting in a slight fall in inventory stocks. Concurrently, companies in Egypt cut their headcount on the back of sluggish orders. Firms in the manufacturing, construction, and wholesale and retail sectors experienced further heavy falls in output and new orders in March, whereas the services sector saw more positive movement.

Backlogged work fell at the sharpest pace in a year, indicating spare capacity amid weak client demand. Vendor performance also took a hit for the fifth month running on the back of customs restrictions.

Light at the end of the tunnel for Egypt? The rate of inflation faced by businesses was lower than that observed earlier in the year. Moreover, Egyptian firms put a stay on price hikes in order to stimulate demand by consumers. Finally, relative stability in the FX market adds to hopes that “peak of inflation could be near,” according to David Owen’s comment on the report.

WATCH THIS SPACE- The UAE’s PMI will be out today. We’ll have coverage in tomorrow morning’s edition.