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|