GCC PMI Readings Remain Positive

The HSBC/SABB Saudi Arabia purchasing managers' index (PMI) for the month of October, released on November 5, points to a renewed weakening in the pace of growth of the non-oil private sector. The headline PMI came in at 56.7, down from 58.7 in September and just above the lowest readings obtained in the survey's 51-month history (56.6, recorded in July and June 2013). Output growth decelerated to the second-slowest rate in the series history, although it remained firmly entrenched in expansionary territory.

That said, we note that Saudi Arabia remains far ahead of other emerging markets, and well above the 50.0 mark separating expansion from contraction. Encouragingly, new export orders have sharply recovered over the past few months after a soft performance earlier in the year, and reached their highest level in the survey's history in October - a trend that should bode well for non-oil exports (largely composed of petrochemicals) in 2014.

We expect the Saudi Arabian economy to perform well throughout the coming quarters, and forecast overall real GDP growth of 4.3% in 2014, up from a projected 3.6% in 2013 (see 'Healthy Outlook For 2014', October 29). The PMI readings of the coming months will be particularly crucial to watch, in our view. As we have noted in the past, the government's continued workforce nationalisation efforts ( 'Saudisation') pose a clear downside risk to near-term non-oil private sector activity. With an amnesty for foreign workers in the country having expired on November 3, and Riyadh having pledged a full crackdown on illegal immigrants, we will be watching closely for signs of disruption to the construction and retail sectors in particular.

PMI Readings Converging
Saudi Arabia and UAE - Purchasing Managers' Index

The HSBC/SABB Saudi Arabia purchasing managers' index (PMI) for the month of October, released on November 5, points to a renewed weakening in the pace of growth of the non-oil private sector. The headline PMI came in at 56.7, down from 58.7 in September and just above the lowest readings obtained in the survey's 51-month history (56.6, recorded in July and June 2013). Output growth decelerated to the second-slowest rate in the series history, although it remained firmly entrenched in expansionary territory.

That said, we note that Saudi Arabia remains far ahead of other emerging markets, and well above the 50.0 mark separating expansion from contraction. Encouragingly, new export orders have sharply recovered over the past few months after a soft performance earlier in the year, and reached their highest level in the survey's history in October - a trend that should bode well for non-oil exports (largely composed of petrochemicals) in 2014.

PMI Readings Converging
Saudi Arabia and UAE - Purchasing Managers' Index

We expect the Saudi Arabian economy to perform well throughout the coming quarters, and forecast overall real GDP growth of 4.3% in 2014, up from a projected 3.6% in 2013 (see 'Healthy Outlook For 2014', October 29). The PMI readings of the coming months will be particularly crucial to watch, in our view. As we have noted in the past, the government's continued workforce nationalisation efforts ( 'Saudisation') pose a clear downside risk to near-term non-oil private sector activity. With an amnesty for foreign workers in the country having expired on November 3, and Riyadh having pledged a full crackdown on illegal immigrants, we will be watching closely for signs of disruption to the construction and retail sectors in particular.

Remaining Impressive In A Global Context
Selected Countries - HSBC Purchasing Managers' Index

The headline PMI for the UAE came in at 56.3 for the month of October, down slightly from 56.6 in September. This remains at the upper range of the survey series, with a host of indicators supporting our bullish view of the UAE's economic prospects. New order intakes rose by the second-highest rate since data collection began in 2009, while the growth of new export orders reached a record high (similar to Saudi Arabia). With consumer and business sentiment looking positive, the outlook for household consumption and fixed investment in the UAE is particularly bright over the coming quarters. Following real GDP growth of 6.2% in 2012, we are projecting the economy to expand by a more moderate 4.1% in 2013, before slowing to 3.4% in 2014 (see 'Positive Outlook On Economy Remains', October 9).

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This article is tagged to:
Sector: Country Risk
Geography: Saudi Arabia, United Arab Emirates
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