ECONOMIC TRENDS

The IHS Markit Saudi Arabia Purchasing Managers’ Index (PMI) rose three points from 53.2 in January to 56.2 in February, signalling a strong improvement in operating conditions, which was the fastest recorded for three months.

"The latest PMI figures confirmed that the impact of the Omicron wave on the non-oil economy was only mild,” said David Owen, economist at IHS Markit. “Following two months of relatively soft (but still positive) growth, momentum rebounded strongly in February as cases began to fall. Overall sales picked up at the quickest rate since last November, despite a further slight fall in export demand, while activity growth moved closer to the peak levels seen towards the end of last year.”

With total new business growth strengthening, non-oil activity expanded to a greater degree in February. Firms were generally able to raise output in line with client demand, leading to a modest decrease in backlogs of work. Notably, this was in spite of only a mild uplift in employment numbers and some reports of staff shortages linked to the pandemic.

  "Signs of improving market conditions meant that business optimism was at its highest since January 2021, as firms expect demand growth to remain robust and the impact of the pandemic to subside,” Owen said. “Reflecting this optimism, companies raised purchasing activity at the fastest rate since May 2019, aided by a strong improvement insupply chain performance."

 

Global supply chains issues are also slowly untangling, with Saudi firms reporting that vendors were able to deliver more quickly, which led to

the strongest improvement in supplier performance since October 2019, according to IHS.

Firms sought to capitalise by raising their input purchases sharply and at the quickest rate in nearly three years, in line with efforts to meet current demand and accumulate stock for future sales. Input inventories rose sharply, albeit to the least extent for three months, the research agency noted.

“Finally, business confidence regarding future activity picked up to the highest since January 2021, amid hopes that market conditions will improve as the country emerges from the Omicron wave and client orders will continue to strengthen,” IHS noted.

ECONOMIC AND TRADE UPTURN

Saudi’s economy is gaining momentum with a 6.8% increase in GDP in the fourth quarter of 2021 compared to the same period in 2020. Oil price’s rally propelled the economy, as oil GDP rose by an impressive 10.8%. Non-oil GDP also remained strong, expanding by 5% during the fourth quarter amid rising economic activity, according to the General Authority for Statistics and Information (GASTAT).

In a sign of an uptick in economic activity, consumer spending surged 8.4% year on year in January, and by 0.2% month on month. Point-of-sale transactions rose 17%, although cash withdrawals slipped 4.3% year on year, according to Saudi Arabian Central Bank’s monthly report.

Even before the latest surge in crude oil prices, Saudi exports were in the midst of strong growth.

Merchandise exports surged 78% in the fourth quarter of 2021 compared to the same period in 2020 when COVID-19-related lockdowns slowed down global economic growth.

Latest available data from GASTAT indicated that the value of exports reached SAR 320.5 billion in the fourth quarter, compared to SAR 180 billion during the same period in 2020. Oil exports led the gains, rising by SAR 119.2 billion or 98% during the period, with the share of oil exports rising to 75.1% compared to 67.5% before.  

Non-oil exports also jumped 36.3% year on year in the fourth quarter, reaching SAR 79.8 billion. Non-oil exports was led by chemical products, which rose 72.7% to SAR 10.9 billion and accounted for nearly a third of all non-oil exports. Plastics and rubber products increased 32.5% and made up 30.6% of the total.

Meanwhile, merchandise imports rose 10.1% to SAR 151.1 billion in the quarter.

 

LOW INFLATION

Inflation is emerging as an area of concern globally, but it remains mild in the kingdom.

Consumer price index in January rose 1.2% in January compared to the same period last year, led by transport, and food and beverage.

Transport prices increased by 4.9%, mainly due to a 34.5% increase in gasoline prices, according to GASTAT.

Transport prices were the main driver of the inflation rate in January 2022 due to their high relative importance in the Saudi consumer basket (with a weight of 13.0%). Food and beverages prices increased by 2.0%, mainly due to the increase in food prices by 2.3%, in particular, vegetable prices by 10%,” the statistics agency said.