It Took Record Discounts to Get Saudi Non-Oil Economy on a Roll
(Bloomberg) -- Saudi companies are having to fight price wars to heat up business in non-oil industries.
A measure of activity in Saudi Arabia’s non-oil private sector hit its highest level in more than a year as firms offered steep discounts to win orders, the Emirates NBD Purchasing Managers’ Index showed on Tuesday.
The gauge rose to 56.2 last month from 54.5 in December. A reading of 50 is the dividing line between expansion and contraction. Output prices fell the most since May 2016, and some of the growth in new orders was likely due to discounts.
“It was the steepest price discounting that was recorded in the survey since the series began in 2009,” Khatija Haque, head of Middle East and North Africa research at Emirates NBD, said in an interview with Bloomberg Television on Tuesday. “Business conditions in Saudi Arabia are quite challenging and firms are having to offer quite significant discounts and promotions in order to secure the new work.
The world’s biggest oil exporter is still struggling to recover from a contraction in 2017 that followed the collapse of crude prices and an economic overhaul program launched by Crown Prince Mohammed bin Salman. Business executives say they’re having a hard time keeping up with rapid policy changes including a new value-added tax, energy subsidy cuts and mandates to replace cheaper foreign workers with citizens to reduce Saudi unemployment.
Still, business optimism about future output in the largest Arab economy reached its highest level in more than five years after the government unveiled plans for its biggest spending drive ever and promised to increase capital outlays. A rebound in oil prices in January likely contributed as well.
The Emirates NBD index showed “only a modest rise in private-sector jobs and wages last month,” and the latest statistics don’t “suggest a strong labor market,” Haque said. She’s predicting gross domestic product will grow 2 percent this year, compared with an estimated gain of 2.3 percent in 2018.
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