Saudi Arabia’s non-oil economic outlook improves

Faster growth in output and new orders helped the headline PMI in Saudi Arabia rise in July, signaling the fastest rate of non-oil sector expansion in three months. (Reuters)
Updated 04 August 2017
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Saudi Arabia’s non-oil economic outlook improves

LONDON: Business conditions in Saudi Arabia improved in July due to rising demand and increased construction activity in the Kingdom, according to the Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI).
The index, which measures economic activity in the non-oil sector, rose to 55.7 in July from 54.3 in June, the highest reading in three months. A ranking above 50 indicates economic growth, while a reading below 50 indicates a contraction.
“Faster growth in output and new orders helped the headline PMI in Saudi Arabia rise in July, signaling the fastest rate of non-oil sector expansion in three months. Firms were more optimistic last month, and this likely contributed to increased buying activity and inventory accumulation,” said Khatija Haque, regional head of research at Emirates NBD. The future output index — which measures sentiment about the 12-month outlook — rose to 59.6 in July.
The report found that manufacturing output and new orders increased at a faster rate in July compared to June. With new orders coming in, firms were able to increase their purchasing activity, with pre-production inventories rising at a faster rate in July compared to the previous month.
However, new export orders among non-oil private sector firms saw a renewed contraction in July after a short-lived increase the previous month. The report said the rate of decline was marginal, with those surveyed citing weakened international demand for Saudi Arabian goods and services.
Producers also cited increased cost pressures in July, mainly due to increased costs of raw materials. The input price index rose to 53.4 last month, marking a three-month high. However, companies did not pass these costs on to the buyers, with the output price index only marginally higher at 50.7. Potential price hikes were curtailed by “intense competitive conditions,” according to the firms surveyed by the report.
Companies also ramped up hiring in July, though the index remained relatively low at 51.2, ensuring that staffing costs only rose “modestly,” according to the report.
The UAE has also seen an improvement in its non-oil sector, with the July PMI reading rising to 56 in July from 55.8 in June. Firms surveyed cited new projects and favorable economic conditions as the reasons for growth. Egypt’s headline PMI rose to 48.6 in July, its highest reading in a year. However, the index suggests conditions are still poor within the North African country’s non-oil sector.
“PMI data coming from Saudi and UAE suggest that recoveries in the non-oil sectors in the Gulf region continued to strengthen and PMI data have increased to a three-month highs,” said Jaap Meijer, head of research at Arqaam Capital.
“Egypt’s PMI also recovered to a 12-month high of 48.6 up from 47.2 in the previous month, but still remained slightly below the 50 mark, signifying that the conditions in the local economy have improved markedly, despite rampant inflationary pressures, suggesting that the worst is now behind us,” he said.


Saudi Aramco aims to buy controlling stake in SABIC: Sources

Updated 43 min 2 sec ago
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Saudi Aramco aims to buy controlling stake in SABIC: Sources

  • Riyadh-listed SABIC, the world’s fourth-biggest petrochemicals firm, has a market capitalization of 385.2 billion Saudi riyals
  • The potential acquisition would affect the time frame of Aramco’s planned initial public offering set for later this year

DUBAI: Saudi Aramco aims to buy a controlling stake in petrochemical maker SABIC, possibly taking the entire 70 percent stake owned by Saudi Arabia’s sovereign wealth fund, two sources familiar with the matter told Reuters.
Late last week Aramco confirmed a Reuters report that it was working on a possible purchase of a “strategic stake” in Saudi Basic Industries Corp. (SABIC) from the Public Investment Fund, the kingdom’s top sovereign wealth fund.
Aramco’s initial thinking is to buy the full stake owned by the Public Investment Fund (PIF), but if that fails to materialize Aramco could end up with a stake in SABIC of more than 50 percent, making it a majority owner, the sources said.
No final decision has been made on the size of the stake as the discussions are still at a very early stage, they added.
Aramco declined to comment. The PIF did not respond to a Reuters request for comment.
Riyadh-listed SABIC, the world’s fourth-biggest petrochemicals firm, has a market capitalization of 385.2 billion Saudi riyals ($103 billion).
The potential acquisition would affect the time frame of Aramco’s planned initial public offering set for later this year, the state oil giant’s chief executive, Amin Nasser, said in a TV interview on Friday.
Aramco plans to boost investments in refining and petrochemicals to secure new markets and sees growth in chemicals as central to its downstream strategy to cut the risk of an oil demand slowdown.
Aramco plans to raise its refining capacity to between 8 million and 10 million barrels per day, from around 5 million bpd now, and double its petrochemicals production by 2030.
Aramco, the world’s largest oil producer, pumps around 10 million bpd of crude oil.