Saudi private sector growth rises to 17-month high

Saudi Arabia’s private sector was subdued last year as it felt the impact of fuel price hikes. (Shutterstock)
Updated 11 June 2019

Saudi private sector growth rises to 17-month high

  • Business bounces back after ‘relatively soft’ 2018
  • Purchasing Managers’ Index well above the 50 mark indicating expansion

DUBAI: Saudi Arabia’s non-oil private sector growth rose to a 17-month high in May as credit conditions improved, output expanded and output prices increased, a monthly survey of companies showed on Monday.

The seasonally adjusted Emirates NBD Saudi Arabia Purchasing Managers’ Index rose to 57.3 in May from 56.8 in April, well above the 50 mark indicating expansion.

Saudi Arabia’s private sector was subdued last year as it felt the impact of fuel price hikes, the introduction of a 5 percent value-added tax and the higher cost of hiring foreign workers.

But it has rebounded this year, with the index for purchasing managers averaging 56.8 points so far against last year’s average of 53.8.

“The gradual rise in the headline PMI this year suggests that growth in the Kingdom’s non-oil private sector is recovering after a relatively soft 2018,” said Khatija Haque, head of MENA research at Emirates NBD.

Job creation accelerated slightly to 50.5 in May from 50.1 a month earlier. Though still weak, May’s rise in employment was the biggest jump since January.

Output prices for goods and services rose for the first time in seven months after a significant drop in April.

Output rose in May for the fifth month in a row, with the subindex climbing to 61.4 from 61.2 in April. This largely reflected improved demand conditions, according to the survey’s authors.

Meanwhile, growth in the UAE’s non-oil private sector rose in May at its fastest pace since October 2014, although job creation was largely stagnant, the PMI survey showed.

The index for the UAE rose to 59.4 in May from 57.6 a month earlier.

Stronger demand, marketing activity and the start of new projects all reportedly contributed to the increases, with companies largely expecting growth to continue over the coming year, the survey’s authors said.

External demand rose at the fastest pace in the index’s nearly 10-year history as new work from Saudi Arabia and Oman in particular pushed the rate of growth in new export orders, according to survey respondents.

“While the rise in the headline PMI indicates faster GDP growth in the UAE’s non-oil private sector, the environment remains a challenging one for businesses,” said Haque.

Output and new order growth has come on the back of price discounting and new export orders, with job creation and wages remaining stagnant, Haque said.

“When the headline PMI was last at a similar level (in October 2014 and January 2015) the survey showed solid growth in private sector jobs, which is not the case this time.”

The employment sub-index nudged down to 50.1, however, with non-oil companies still showing reluctance to hire additional staff.

The UAE economy grew about 1.7 percent in 2018, slower than projected despite a boost from higher oil prices, preliminary data showed in March. The economy is projected to grow 3.5 percent in 2019, helped by strong non-oil activity, the central bank said in a quarterly report.

Easy credit poses tough challenge for Russian economy minister

Updated 18 August 2019

Easy credit poses tough challenge for Russian economy minister

  • Measures being prepared to help indebted citizens; situation might blow up in 2021

MOSCOW: New machines popping up in Russian shopping centers seem innocuous enough — users insert their passport and receive a small loan in a matter of minutes.

But the devices, which dispense credit in Saint Petersburg malls at a sky-high annual rate of 365 percent, are another sign of a credit boom that has authorities worried.

Russians, who have seen their purchasing power decline in recent years, are borrowing more and more to buy goods or simply to make ends meet.

The level of loans has grown so much in the last 18 months that the economy minister warned it could contribute to another recession.

But it’s a sensitive topic. Limiting credit would deprive households of financing that is sometimes vital, and could hobble already stagnant growth.

The Russian economy was badly hit in 2014 by falling oil prices and Western sanctions over Moscow’s role in Ukraine, and it has yet to fully recover.

“Tightening lending conditions could immediately damage growth,” Natalia Orlova, chief economist at Alfa Bank, told AFP.

“Continuing retail loan growth is currently the main supporting factor,” she noted.

But “the situation could blow up in 2021,” Economy Minister Maxim Oreshkin warned in a recent interview with the Ekho Moskvy radio station.

He said measures were being prepared to help indebted Russians.

According to Oreshkin, consumer credit’s share of household debt increased by 25 percent last year and now represents 1.8 trillion rubles, around $27.5 billion.

For a third of indebted households, he said, credit reimbursement eats up 60 percent of their monthly income, pushing many to take out new loans to repay old ones.

Orlova said other countries in the region, for example in Eastern Europe, had even higher levels of overall consumer debt as a percentage of national output or GDP.

But Russian debt is “not spread equally, it is mainly held by lower income classes,” which are less likely to repay, she said.

The situation has led to friction between the government and the central bank, with ministers like Oreshkin criticizing it for not doing enough to restrict loans.

Meanwhile, economic growth slowed sharply early this year following recoveries in 2017 and 2018, with an increase of just 0.7 percent in the first half of 2019 from the same period a year earlier.

That was far from the 4.0 percent annual target set by President Vladimir Putin — a difficult objective while the country is subject to Western sanctions.

With 19 million people living below the poverty line, Russia is in dire need of development.

“The problem is that people don’t have money,” Andrei Kolesnikov of the Carnegie Center in Moscow wrote recently.

“This is why we can physically feel the trepidation of the financial and economic authorities,” he added. Kolesnikov described the government’s economic policy as something that “essentially boils down to collecting additional cash from the population and spending it on goals indicated by the state.”

At the beginning of his fourth presidential term in 2018, Putin unveiled ambitious “national projects.”

The cost of those projects — which fall into 12 categories that range from health to infrastructure — is estimated at $400 billion by 2024, of which $115 billion is to come from private investment.