LONDON: Business conditions in Saudi Arabia marginally improved in February compared to the previous month’s historic low, according to a survey of the country’s non-oil private sector.
The Emirates NBD Purchasing Managers’ Index rose to 53.2, a slight uptick on January’s measure of 53, which was the lowest reading since the survey began in 2009. A reading above 50 indicates growth, while anything below indicates a contraction.
New order growth in the country slowed sharply last month, with a measure of 52.9 marking the lowest level in the survey’s history.
Although current business conditions remain muted, the outlook for future growth prospects improved, reaching its highest point since April 2014.
“While the pace of expansion in Saudi Arabia’s non-oil sector was slow by historical standards in February, firms were much more upbeat about prospects for the coming year, citing new project wins and stronger growth prospects,” said Khatija Haque, head of regional research at Emirates NBD.
The latest reading comes after the introduction of a new value-added tax (VAT) and a range of price hikes at the start of the year in the Kingdom.
Jason Tuvey, Middle East economist at Capital Economics, said these factors contributed to both the increase in inflation and a deterioration in economic conditions, which has eroded households’ consumer spending.
Firms appear to be responding by absorbing some of the impact in their profit margins rather than passing it on to consumers,” he said in a research note.
According to the ENBD PMI survey, firms in Saudi Arabia cut selling prices in February by the most in the survey’s history in response to weakening demand.
While noting that Saudi Arabia’s non-oil sector is likely to improve, Tuvey warned that households will be the “weak spot” for economic recovery. He said an increase in government infrastructure spending will be the main driver for future growth in the non-oil sector.
The survey said that lower PMI readings recorded so far this year were likely in response to the rapid increase in activity and purchasing in the last quarter of 2017, ahead of the introduction of the VAT charge in January.
“We expect this to be a temporary phenomenon and we expect the PMIs to recover over the next couple of months,” the report said.
Elsewhere, the UAE’s PMI dropped for the second month in a row in February to 55.1. It marks the lowest reading since September 2017.
The survey said slower growth in output last month was the main driver behind the drop in the reading. Business optimism about future output also declined last month, falling to 57.2 from 71.2 in January.
As in Saudi Arabia, the lower readings were also put down to a reaction to increased spending at the end of last year ahead of the UAE’s new VAT law introduced on Jan. 1.
The UAE’s non-oil sector will grow at a faster rate in 2018 as the government ramps up spending on both infrastructure projects and public sector wages, the survey said.
Saudi business conditions improve as corporate outlook strengthens
Saudi business conditions improve as corporate outlook strengthens
G7 countries to release oil reserves as IEA agrees to largest ever market intervention
- IEA recommends release of 400 million barrels
RIYADH: Germany, Japan and Austria will release part of their oil reserves after the International Energy Agency recommended the release of 400 million barrels of oil from stockpiles, the largest such move in IEA history.
In a statement, IEA Executive Director Fatih Birol said the flow of oil, gas and other commodities through the Strait of Hormuz have all but stopped, leading global energy supply to fall by around 20 percent.
Ahead of the confirmation of the move — a larger intervention than the 182.7 million barrels that were released in 2022 by in response to Russia’s invasion of Ukraine — several countries began setting out plans to bring their reserves into play as countries grapple with soaring crude prices amid the US-Israeli war with Iran.
Birol said: “I can now announce that IEA countries have decided to launch the largest ever release of emergency oil stocks in our agency's history.
“IEA countries will be making 400 million barrels of oil available to the market to offset the supply lost through the effective closure of the strait.
“This is a major action aiming to alleviate the immediate impacts of the disruption in markets.”
Germany’s Economy Minister Katherina Reiche confirmed on Wednesday her government plans to limit petrol price increases at filling stations to once a day and to introduce more stringent antitrust regulation of the sector.
She did not give an exact timing for those measures, but added that the US and Japan would be the largest contributors to the release of the oil reserves.
The US has not confirmed it would do so, but its Interior Secretary Doug Burgum told Fox News on Wednesday that “these are the kinds of moments that these reserves are used for.”
The announcements did not stop oil prices rising, with Brent crude up 3.26 percent to $90.66 a barrel at 4:29 p.m Saudi time, and West Texas Intermediate up 3.12 percent to $86.05. Both were some way below the $119 a barrel seen earlier in the week.
“The situation regarding oil supplies is tense, as the Strait of Hormuz is currently virtually impassable,” Germany’s Reiche said.
“We will comply with this request and contribute our share, because Germany stands behind the IEA’s most important principle: mutual solidarity,” Reiche said about the IEA’s request.
According to a statement by Reiche’s ministry, Germany will contribute 2.64 million tonnes of oil. This corresponds to 19.51 million barrels.
Reiche stressed there was no supply shortage in the country, which has a legally mandated reserve of oil and oil products intended to cover 90 days’ demand.
South Korea will release 22.46 million barrels of oil, which represents 5.6 percent of the total IEA ask, the country's industry ministry said.
“The government will consult with the IEA secretariat on details, such as the timing and amount, from the perspective of national interests in accordance with domestic conditions,” the ministry said in a statement.
The ministry said it would continue to coordinate closely with major countries in responding to high oil prices to minimise any domestic impact.
Austrian Economy Minister Wolfgang Hattmannsdorfer said his country was releasing part of the emergency oil reserve and extending the national strategic gas reserve, adding: “One thing is clear: in a crisis, there must be no crisis winners at the expense of commuters and businesses.”
Acting ahead of the IEA move, G7 member Japan announced plans to release 15 days' worth of private-sector oil reserves and one month's worth of state oil reserves.
“Rather than wait for formal IEA approval of a coordinated international reserve release, Japan will act first to ease global energy market supply and demand, releasing reserves as early as the 16th of this month,” Prime Minister Sanae Takaichi said in a broadcast statement.
Following a meeting with the IEA on Wednesday, G7 energy ministers said: “In principle, we support the implementation of proactive measures to address the situation, including the use of strategic reserves.”
All IEA member countries are required to keep 90 days’ worth of their nation’s oil use in reserve in case of global disruption.
