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Saudi Arabia’s private non-oil sector grew at its slowest pace in at least nine years, as it continues to feel the pinch of the government’s austerity measures in response to the low oil prices and low oil revenues for the state, a survey of businesses showed on Thursday.
The Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI) dropped to just 51.4 in April, down from 52.8 in March, and the lowest reading of the index since the series began in August 2009. A reading below 50.0 means contraction, while the index above 50.0 means expansion of economic activity.
According to the firms surveyed, the slow growth in the private non-oil sector was due to subdued market demand, competitive pressures, and “unpredictable economic conditions”.
The April index marked a new low for the Saudi non-oil growth, following a previous record-low reading of the index for March. Non-oil private economic growth has been slowing over the past few months, especially after the introduction of a 5-percent value added tax (VAT) in January. Many firms cited VAT as dampening consumer demand in March.
Now with the new low of the non-oil growth in April, “that non-oil private sector activity has slowed so sharply this year is surprising to us, particularly when we consider 1) the expansionary budget that was announced for 2018 to support growth in the non-oil sectors and 2) the unexpectedly high oil price year-to-date, which usually drives stronger non-oil sector activity,” Khatija Haque, Head of MENA Research at Emirates NBD, said.
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“One possible explanation is that budget execution so far this year has not been as strong as we might have expected, with a recent Bloomberg report indicating that some contractors in the Kingdom are still facing significant payment delays despite the substantial boost in government oil revenue since the lows of early 2016. Another consideration is that uncertainty following the November anti-corruption crackdown has weighted on businesses activity and investment in the private sector,” according to Emirates NBD.
The International Monetary Fund’s (IMF) head for the Middle East and Asia, Jihad Azour, said on Wednesday that Saudi Arabia needs oil to trade at US$85 a barrel to fill its budget gap.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.