Business conditions in Saudi Arabia eased to a four-month low as both output and new orders expanded at weaker rates, the latest survey of purchasing managers showed.

The headline seasonally adjusted IHS Markit Saudi Arabia Purchasing Managers’ Index (PMI) fell to 53.9 in February from January's high of 57.1 and was the lowest recorded in four months.

Employment lagged the recovery in output again as firms reduced job numbers for the third month running, although input purchases and inventories continued to climb.

However, firms remained hopeful that the impact of COVID-19 will lessen over the coming year, despite business optimism falling to the lowest since last October.

"The economic recovery in Saudi Arabia’s non-oil private sector lost some momentum in February, with the PMI dropping from 57.1 in January to 53.9 to signal the softest rate of improvement in four months. Nevertheless, the sector remained broadly on the right track, with new business inflows and export sales continuing to rise whilst firms also built inventories in anticipation of stronger future growth,” said David Owen, economist at IHS Markit.

The PMI remained above the 50.0 growth threshold and suggested a further recovery in business conditions from the initial impact of the COVID-19 pandemic. The output, new orders and stocks of purchases sub-components drove the index into positive territory, despite each recording a lower reading than in January.

Private sector output increased solidly during February, which surveyed firms largely attributed to stronger client demand.

However, the rate of growth softened for the first time since activity began to rise last September. Likewise, firms saw higher inflows of new work, but the expansion slowed since the start of 2021.

Employment numbers fell for the third month running in February, as firms were able to reduce outstanding workloads despite higher demand. This indicates that the recovery in jobs is still lagging the rebound in activity.

"Staff numbers continued to lag the recovery, however, as firms are yet to see additional pressure on business capacity. That said, barring the slight increase in employment last November, the rate of job shedding was the softest recorded for ten months,” said Owen.

Sales were driven higher by improved business confidence and efforts to maintain competitive pricing strategies, according to those surveyed. Demand from foreign customers also rose, albeit only at a modest pace.

Resilient business confidence led firms to project a rise in output over the coming 12 months in February, although business sentiment was the weakest seen since last October.

"Sentiment data suggests that companies expect a rocky start to 2021 as some countries remain under lockdown measures, but the roll out of COVID-19 vaccines around the world should bring a steep improvement in economic activity in the latter half of the year as the pandemic begins to ease," Owen said.

Whilst the long-run outlook was strong due to global vaccine roll outs, firms also cited low expectations for output in the near term as some countries remain in lockdown.

(Reporting by Brinda Darasha; editing by Seban Scaria)

brinda.darasha@refinitiv.com

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