The region’s non-oil private sector had a better month in August

The region’s non-oil private sector had its broadest month of improvement in August since the war began, with the UAE, Saudi Arabia, Kuwait, and Egypt all seeing improved conditions during the month. The exceptions were Qatar and Lebanon, each of which lost ground as costs climbed and external demand thinned.

IN CONTEXT- The Strait of Hormuz was all but closed throughout most of the month, with just 447 transits recorded in August, compared to 3,098 in February, according to Lloyd’s List data. While July’s purchasing managers index (PMI) readings had leaned on the calm of the now-defunct US-Iran ceasefire and the cooling oil prices that came with it, August’s improvement was instead driven by domestic demand and from firms working around the disruption. New export orders fell in Saudi Arabia, Qatar, Lebanon, and Turkey, while the countries that gained ground did so on local customers, local suppliers, and restocking.

The UAE ran furthest with that. Its PMI rose to 55.3 from July’s 52.7, the fastest improvement in business conditions since December 2024. New work inflows were at a joint record for their strongest level in more than two years, while export demand rose for a second consecutive month. Firms leaned on domestic vendors to route around the disruption, which cut delivery times, pushed input cost inflation to a six-month low, and let companies rebuild input stocks at the sharpest pace in nearly three years. Employment, on the other hand, fell for the second time in three months, which S&P Global Market Intelligence Principal Economist David Owen attributed to hesitancy about committing to long-term capacity.

Saudi Arabia’s 0.7 point growth to 53.8 pushed its PMI to a six-month high and marked a fifth straight month of expansion, with output growing at its fastest pace in seven months. The split between domestic and external demand was starkest here: New orders rose for a fifth month while international orders fell sharply and faster than in July. “Domestic demand remains an important driver of growth,” said Riyad Bank Chief Economist Naif Al Ghaith, pointing to fiscal support and the development project pipeline. The reading still sits well below the survey’s long-run trend of 56.8, and competition kept output charges rising at their slowest rate since March, even as staff costs rose at the fastest pace since February.

Kuwait built on July’s rebound, with the PMI climbing to 53.6 from 50.8 as output and new orders grew at their quickest rates since February and employment rose for the first time in six months. New business in Kuwait was “supported by a renewed increase in new export orders as companies reported being able to secure sales from customers in neighbouring countries.”

Egypt, meanwhile, came within striking distance of the line that separates contraction from growth, with its PMI jumping nearly three full points to 49.6. The August reading is a seven-month high and shows the softest contraction since January. Employment rose for the first time since last October, at the second-fastest rate in the survey’s 15-year history, while business confidence hit its highest since June 2022. The strain showed up in purchasing, which fell at the steepest rate in nearly three years on material scarcity, cash flow limits and Hormuz disruption, while the oil rebound reaccelerated input costs.

Going the other way

Qatar moved the other way, slipping to 47.6 from 48.5 and extending its downturn to six months. Output fell for the eighth time in nine months and at a faster rate, across all four sectors, even as the decline in new orders slowed to its softest since February. Costs are the pressure point: Input price inflation accelerated for a survey-record eighth consecutive month to a 22-month high, and employment growth sank to its weakest in 25 months.

Lebanon lost its narrow foothold, with the PMI easing to 50.1 from 50.7 and activity virtually flat after modest gains in June and July. New business fell after two months of growth, dragged by a ninth straight monthly decline in export orders. Operating expenses rose at the second-fastest pace in almost three and a half years, and output charges at the second-quickest in just over three. Firms remain pessimistic about the year ahead, though less so than in July.