Domestic demand offsets declining growth in Saudi exports

03 September 2012

Contracting growth in Saudi export orders offset by strong government spending, say analysts

Saudi Arabia’s purchasing managers’ index (PMI) remained stable in August as government spending and domestic demand offset declining growth in export orders.

The PMI index remained at just over 58 points and was “all but unchanged” from July, remaining firmly above the 50 level that represents flat growth, according to data from HSBC. Growth in new export orders fell by nearly two points from July to a two-year low of 54 due to weak external demand.

“However, this continued to be wholly offset by robust growth in government-spending led domestic demand,” says HSBC economist Simon Williams. “Indeed, despite weakening exports, overall new orders rose by more than two points in August on the July reading.”

The output price PMI score dropped below 50 in August, signalling a month-on-month contraction in prices. HSBC said this drop was surprising but was not expected to persist owing to the strength of the overall Saudi economy and “evidence in the PMI that the cost base for Saudi firms is still rising”.

Saudi Arabia has remained relatively unaffected by the economic turbulence facing much of the developed world, as the government pushes through a massive spending programme.

Government spending and rising oil production have led the Washington-headquartered IMF to forecast 60 per cent economic growth in the kingdom this year.

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