Expansion of nonoil producing private sector gains momentum
Expansion of nonoil producing private sector gains momentum
It reflects the economic performance of Saudi nonoil producing private sector companies through monitoring a number of variables, including output, orders, prices, stocks and employment.
The expansion of Saudi Arabia’s nonoil producing private sector gained momentum during August, with output, new orders and employment all increasing at stronger rates compared to July.
Inventory accumulation also strengthened as companies retained optimism regarding future activity requirements, leading to another marked increase in purchasing activity.
Vendors reacted positively to greater requirements for inputs by improving their delivery performance at a marked pace.
The headline index from the report, the seasonally adjusted SABB/HSBC Saudi Arabia Purchasing Managers’ Index (PMI), improved in August to a level of 60.7, from July’s 60.1. That was the best reading since July 2011 and signaled acceleration in growth for the third month in a row.
Driving the SABB/HSBC PMI Index higher were stronger gains in both output and new orders.
Latest research data showed that output increased to the sharpest degree since June 2011 while the rise in sales was the strongest for nearly two years.
Many companies reported an improvement in underlying demand as market conditions strengthened, both at home and abroad.
New export sales increased at the strongest pace since March with demand from companies reported to have strengthened.
Good reputations for business helped to build client relationships and support sales growth according to research participants.
As incoming new business continued to increase, the pressure on capacity was sustained. Backlogs of work rose for a 19th successive month, albeit at a rate that was down on July’s survey record.
Participants in the SABB/HSBC Index study responded to the increase in workloads by recruiting more staff. Net employment increased further and at the best rate since March 2013, according to latest data.
Reflective of some optimism for future activity and business requirements, companies continued to increase purchasing activity during August. Growth was again sharp, and accelerated since the previous research period.
With delivery times for inputs continuing to shorten, companies were able to replenish their inventories, with stocks of purchases increasing to the greatest degree since March 2013.
Meanwhile, on the price front, average input costs continued to increase during August, albeit at a slower rate. Purchase price increases weakened to a three-month low, but staffing costs rose at a slightly faster pace. Output charge increases remained modest.
Iran sanctions shadow falls on smaller German banks
- Some German companies plan to press on with Iran dealings
- German exports to Iran rose 15.5 percent last year
Germany’s biggest lenders have shied away from business with Iran after past penalties for breaching US sanctions, but smaller banks have leapt on opportunities afforded by the nuclear deal rejected by Donald Trump.
There are just months to go until a November deadline issued by Washington after the US president abandoned a hard-fought agreement that loosened business restrictions on the Islamic Republic in exchange for Tehran giving up its pursuit of nuclear weapons.
But some firms plan to press on in their dealings with Iran despite the looming threat of penalties.
“We will continue to serve our clients,” for now, said Patrizia Melfi, a director at the “international competence center” (KCI) founded by six cooperative savings banks in the small town of Tuttlingen in southwest Germany.
The center, which supports companies operating in sensitive markets like Iran or Sudan, has seen demand “rising sharply in the last few years, from firms listed on the Dax (Germany’s index of blue-chip firms), from all over Germany and from Switzerland,” she added.
German exports to Iran have grown since the nuclear deal was signed in 2015, adding 15.5 percent last year to reach almost €2.6 billion ($3.0 billion) after 22-percent growth in 2016.
Such figures remain vanishingly small compared with Germany’s €111.5 billion in exports to the US — its top customer.
Nevertheless, the KCI will “wait and see what the sanctions look like” before turning away from Iran, Melfi said.
Already, firms dealing with Tehran must take great care not to fall foul of US restrictions.
Transactions are carried out in euros, and the KCI does not deal with businesses that have American citizens or green card resident holders on their boards.
What’s more, products sold to Iran cannot contain more than 10 percent of parts manufactured in the US.
One of the most important inputs for the business is “courage among our managers” given the high risks involved, Melfi said.
Germany’s two biggest banks, Deutsche Bank and Commerzbank, avoid Iran completely after being slapped with harsh fines in 2015 over their dealings there, with Deutsche alone paying $258 million in penalties.
DZ Bank, which operates as a central bank for more than 1,000 local co-op lenders, is withdrawing completely from payment services there, a spokesman told AFP.
That left KCI to seek out the German branch of Iranian state-owned bank Melli in Hamburg.
Even that linkage could break if Iran’s biggest business bank appears on a US list of barred businesses as it has before.
Meanwhile, among Germany’s roughly 390 Sparkasse savings banks, business with the regime is mostly limited to producing documents linked to export contracts.
“We will be looking even more closely at those” in the future, a person familiar with the trade told AFP.
Elsewhere in the German economy, the European-Iranian Trade Bank (EIH) founded in 1971 is another conduit to Tehran.
Also based in Hamburg, it for now remains “fully available to you with our products and services,” the bank assures clients on its website, although “business policy decisions by European banks may result in short term or medium term restrictions on payments.”
Neither does the Bundesbank (German central bank) believe that much has so far changed for business with Iran.
“Only the European Union’s sanctions regime will be decisive,” if and when it is changed, the institution told AFP.
Any payment involving an Iranian party would have to be approved by the Bundesbank if things return to their pre-January 2016 state.
German banking lobby group Kreditwirtschaft has called on Berlin and other EU nations to clarify their stance — and to make sure banks and their clients are “effectively protected against possible American sanctions.”
KCI’s Melfi said time is running out for EU governments to act.
“Many firms just want to stop anything with Iran, since they can’t calculate the risk of staying,” she noted.
On Friday for the first time since the Iran nuclear deal came into force in 2015, China, Russia, France, Britain and Germany gathered in Vienna — at Iran’s request — without the US, to discuss how to save the agreement.