Riyadh Skyline
Saudi Arabia is forecasting a higher round of growth this year, led by new projects as well as firmed up oil prices. But businesses in the Kingdom were subdued in their growth expectations, at least during December. Image Credit: Bloomberg

Dubai: Worries about the Omicron impact dented Saudi business confidence during December, with new orders recording a sharp slowdown. Hiring activity in the Saudi private sector was subdued as sentiments about future growth dipped to an 18-month low.

Omicron wasn’t the only reason worrying business owners, with faster than expected inflation and competition adding to their concerns, according to the latest PMI update from IHS Markit, the research firm that tracks monthly private sector activity. "The latest data pointed to particularly sharp slowdowns in new order growth across manufacturing and services, as panellists often commented on cancelled bookings and weaker client demand.”

Compounding the downbeat sentiments was the fact that new business from overseas rose at the “weakest rate since April”. All of this meant that PMI (Purchasing Managers Index) dropped a significant three points to 53.9 for December. This makes it the lowest monthly reading since March last, but still indicates a “solid improvement in operating conditions across the non-oil sector economy”.

According to Owen, “The slower pace of economic recovery prompted firms to give a weaker projection for future output.”

Alongside the Omicron variant, faster inflation and strong competition were also
mentioned by companies with a downbeat outlook

- David Owen of IHS Markit

Drop in sentiments

The worries about the Omicron peaked worldwide during December, and which is also reflected in how businesses in Saudi Arabia felt. January should see a turnaround because the key growth foundations remain very much in the mix.

A lot will also depend on how soon new business wins from abroad goes back into higher growth trajectory. A lot will also depend on how soon new business wins from abroad goes back into higher growth trajectory. While the ‘new orders’ sub-index dropped to a nine-month low, the rise in new business from within the Kingdom was still rated “sharp”.

Costs are on the march
For Saudi business, the higher input prices will have come at an inopportune moment. This was brought on by
higher raw material prices and transport costs, with the rate of inflation accelerating to the "highest since June and was solid", according to IHS Markit.