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Saudi Non-oil Sector Grows Strongly

Middle East : 05 October 2012

Source: Arab News

The Saudi British Bank (SABB) has published the results of the headline SABB/HSBC Saudi Arabia Purchasing Managers’ Index (PMI) for September 2012 – a monthly report issued by the bank and HSBC.

It reflects the economic performance of Saudi nonoil producing private sector companies through the monitoring of a number of variables, including output, orders, prices, stocks and employment.

The Saudi Arabia nonoil-producing sector continued to report strong growth of both business activity and new orders in September. The headline PMI rose to 60.3, up from 58.3 in August, to reach a four-month high. The average PMI reading through the third quarter of 2012 (58.9) was below the average for Q2, but nonetheless broadly in line with the survey trend.

Business activity rose at the fastest pace since April, underpinned by accelerated growth of incoming new work. Over 55 percent of the survey panel signaled an increase in total new business, reflecting reports of improved inflows from both domestic and export clients. After easing to a 21-month low in August, the rate of expansion in new export orders accelerated sharply to a seven-month peak.

Strong growth of incoming new business exerted further pressure on capacity, with September seeing backlogs of work rise for the second straight month. The rate of increase was broadly similar to the prior month and above the average for the survey history.

Improved operating conditions and rising levels of outstanding business encouraged companies to increase employment. Payroll numbers rose for the twelfth consecutive month, with the pace of jobs growth the sharpest since April. The continued strengthening of the labor market exerted upward pressure on average wages and salaries, which rose solidly over the month. Higher payroll costs were also linked to recent contract negotiations and the rising cost of living.

Average purchase prices also increased during the latest survey period. However, the rate of inflation slowed further and was the weakest for over two years. With payroll costs rising at a faster pace, and purchase price inflation easing, the rate of increase in overall costs was broadly similar to that signaled in August.

Companies passed on part of the increase in costs to clients in the form of higher charges during September. Average output prices rose marginally, following a slight decrease in August. A number of firms reported that their pricing power was still being constrained by competitive pressures.

Purchasing activity rose at the fastest pace for five months in September, leading to a further robust increase in inventory holdings. Over a third of surveyed companies reported higher levels of input buying during the latest survey period. Meanwhile, average vendor performance showed a further marked improvement, as surveyed companies benefited from successful negotiations and regular order placement.

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