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Strong Growth Continues in Saudi Non Oil Private Sector

Saudi Arabia : 05 May 2011

A recent survey reported that business activities in the non oil Saudi Arabian private sector increased for the month of April.

Recruitment was also higher last month allowing businesses to meet increased requirements, based on the information in a report by the HSBC and the SABB (or Saudi British Bank).

Results from SABB’s PMI for Saudi Arabia were highlighted in the report.

Numerous variables were monitored in the report designed to reflect the economic activity in the producing private industries with Saudi’s non oil sector. Variables such as outputs and exports, output and input prices, new orders, purchasing quantities, employment and stocks were included.

The report gave little indication that the turmoil and political unrest experienced in other areas of the Middle East region were having a significant effect on the non oil private industries economic performance for the opening of Q2.

Even though the output expansion rate and amount of new businesses was slower than the rate reported in March, both still hold above the trends seen in respective series. It was noted that businesses were proving their confidence with regards to today’s business climate as well as future conditions by hiring more staff and building their stocks.

Results from the survey did indicate that inflation in input prices was higher, reaching a record high for the series as instability around the world resulted in higher purchasing costs.

Nearly unchanged from the 62.8 March reading, April’s headline PMI was reported at 62.7.

Even though this reading is the lowest reported in the past four months, it still sits higher than the series trend and was considered an indication that operating conditions have improved further in Saudi Arabia’s non oil private sector.

A strong rise in new business was evident in the recent survey period, although the rate of growth was somewhat weaker. Survey respondents noted that the government was a source of more business and improving conditions within the economy.

The data indicated that the major driving force for new orders was the domestic market.

In order to meet the rise in new business Saudi private firms within the non oil industries increased their output in April.

However, the growth rate recorded was mild compared to those seen in the last six months. In relation to business size, the small and mid-sized firms (or SMEs) reported less of a sharp increase than the large businesses did.

Higher demand in the market combined with project delays as a result of the Japanese crisis and Saudi port backlogs resulted in a rapid pile up of outstanding business within the non oil private sector businesses last month. The resulting accumulation rate set a record for both series.

Businesses increased purchases and employment in Saudi last month just to keep pace with the increasing business requirements. Job creation experienced the highest gain since December of 2009 and purchasing activities grew at a pace very similar to those reported in March.

Average vendor performance levels maintained a trend of improvement last month, although the rate was weaker than has ever been seen in the series. Members of the panel noted that this slower pace is a result of disruptions due to the disaster in Japan and customs delays.

Due to higher rates of input acquisitions the input stocks in Saudi non oil private businesses built up at a faster pace. Panel members noted that increased holdings were partially due to future growth expectations for new orders and done to offer security against more disruptions in supply.

April’s inflation in purchasing prices sped up to reach a joint-series highest rate, mainly due to increased costs for fuel and raw materials. Businesses noted that political unrest in the MENA region and unfavorable exchange rates were the main causes of increasing commodity prices. Inflation within staffing costs was also noted for April. Overall cost of inputs grew at the fastest rate in larger businesses.

In order to maintain profit margins in the face of increasing input costs businesses had to increase tariffs last month. This resulted in the sharpest charge inflation seen in nearly a year.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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