The non-oil private sector in Kuwait continued its recovery path during October, with the growth in production and new orders accelerating to levels not recorded in months, coinciding with a record rise in purchasing activity and inventory of production supplies, according to purchasing managers’ index data issued by S&P Global.
The main index, seasonally adjusted, rose to 52.9 points in October, compared to 52.4 points in September, exceeding the neutral level of 50 points for the fourth month in a row. The reading indicates a strong monthly improvement in business conditions in the non-oil private sector.
The growth of new orders recorded its highest level in eight months, with the expansion continuing for the fourth month in a row, while export orders rose at a faster pace, as companies participating in the survey reported receiving new orders from customers in neighboring countries. Production growth also accelerated compared to September, continuing its upward trend since its return to growth in July.
The companies indicated that the improvement in demand and production was linked to several factors, including the launch of new products, the intensification of marketing activities, and the adoption of competitive prices.
In response to the increase in new orders, companies intensified their purchasing activity during October, and purchases of production inputs and inventory purchases recorded the highest growth rate since the start of data collection. Some survey participants reported that they took advantage of suppliers' offers to secure materials ahead of expected price increases in the coming months.
On the other hand, supply conditions improved, as suppliers’ delivery times recorded their shortest periods since the start of data monitoring, amid intensified competition between suppliers and improved availability of materials.
Staffing and costs
Regarding the labor market, employment growth remained limited, although its pace accelerated slightly compared to September, with the number of workers rising for the third month in a row. Some companies indicated that the lack of employees contributed to the accumulation of unfinished business, which rose for the fourth month in a row at a strong pace, approaching the record level recorded in February.
At the same time, inflationary pressures increased during October, as input costs rose at the fastest pace since February, driven by increases in the prices of a number of items, including advertising, machinery maintenance, spare parts and employees. Production prices also rose at a noticeable pace, although lower than the record level recorded in September 2021.
Despite escalating costs, companies' expectations for activity over the next 12 months improved for the fourth month in a row, reaching their highest levels since February. Companies attributed this optimism to the expected benefits of intensifying marketing activities and adopting competitive pricing policies, and the resulting increase in business.
Andrew Harker, director of economic studies at S&P Global Market Intelligence, said that the recovery in the non-oil private sector in Kuwait strengthened during October, with companies succeeding in obtaining new orders and increasing business volume. He added that companies responded to the increase in workloads by intensifying purchases and increasing inventory, noting that part of this expansion aims to avoid future increases in prices in light of the intensification of inflationary pressures.
Harker pointed out that recruitment remained one of the areas that recorded modest growth, as companies linked delays in project completion to a shortage in employee numbers, but he pointed out that the workforce increased for the third month in a row, with companies following a slow and steady approach to recruitment.
The contraction in non-oil private sector activity in Egypt accelerated during October, with production and new orders declining at the fastest pace in four months, in light of weak demand, rising prices, and the repercussions of the conflict in the Middle East on commercial activity and supply chains, according to purchasing managers’ index data issued by S&P Global.
The main index settled at 47.2 points in October, unchanged from September, but remained below the neutral level of 50 points, continuing to indicate contraction in operating conditions for the tenth month in a row. It also remained below its long-term average of 48.2 points.
The latest reading, according to S&P Global estimates based on the historical relationship between the index and the Egyptian GDP, corresponds to an annual growth of the economy of about 4.3 percent. The index indicates the trend of activity in the non-oil private sector, and does not represent a direct reading of the gross domestic product.
The survey results showed a decline in production and new orders at their fastest rate in four months, as the participating companies attributed this to weak customer demand, in light of the market stagnation, high prices, and declining purchasing power. Demand was also affected by external market conditions and the repercussions of the ongoing conflict in the Middle East, with additional delays recorded with suppliers.
These conditions prompted companies to sharply reduce their purchases of production inputs, while the inventory of purchases rose for the first time since June, as companies sought to build reserves in anticipation of inflation fears. Supply chain pressures continued, as delivery times recorded their longest duration since June, as a result of maritime transport disruptions, material shortages, and slow customs procedures.
On the labor market front, employment levels returned to contraction in October, ending a streak of growth that had lasted for two consecutive months. The decline was limited, and companies generally attributed it to employees leaving their jobs. The backlog also fell for the first time since January, albeit slightly.
Price pressures and corporate confidence
In contrast, cost pressures accelerated sharply during October, with input price inflation rising to its strongest level since May. Companies pointed to increased costs of imported inputs, energy and shipping, as well as the weak exchange rate of the pound against the dollar. Staff costs also rose at a faster pace compared to September, with salary adjustments to keep pace with rising costs of living.
The increase in operating costs was reflected in selling prices, as companies raised the prices of their products at the fastest pace since June, with customers bearing part of the increase in costs.
Egyptian business confidence fell to its lowest level in seven months, as companies expressed only limited optimism about production levels over the next twelve months. While some of them expressed their hope for improved economic and market conditions, other companies expressed concerns about the impact of wars, high inflation, and supply chain disruptions on activity in the coming period.
David Owen, chief economist at S&P Global Market Intelligence, said that the basic picture of activity deteriorated at the beginning of the fourth quarter, despite the stability of the main index at 47.2 points, indicating that production and new orders decreased at the fastest rate in four months, coinciding with the return of employment and backlog to contraction, and the decline of business confidence to the lowest level in seven months.
He added that inflation in input prices reached the highest level since May, driven by rising import, energy and shipping costs and the weak exchange rate, which prompted companies to raise selling prices at the fastest pace since June. He believed that this might make the recent official inflation decline short-lived, and increase the challenges for policymakers.
Owen warned that the continued repercussions of the conflict in the Middle East on export demand and supply chains keep the risks surrounding the short-term economic prospects tilted to the downside.
The non-oil private sector in Saudi Arabia continued to record growth during October, with the pace of commercial activity accelerating and production improving, despite the Purchasing Managers’ Index declining to 54 points, compared to 55.3 points in September, according to Riyad Bank index data issued by S&P Global.
The main index, seasonally adjusted, remained above the neutral level of 50 points for the seventh month in a row, indicating continued improvement in operating conditions in the non-oil sector. Although it was lower than the September reading, which recorded the highest level in seven months, the October reading was the second highest level for the index since February.
The data showed production growth accelerating to a strong pace compared to the previous month, supported by improved underlying demand and companies intensifying sales and marketing efforts. New orders also continued to rise, albeit at a slower pace than in September, and remained below the historical series average.
Demand growth depended mainly on the local market, at a time when export orders declined for the eighth month in a row, and at a faster pace. The companies participating in the survey reported that shipping disruptions, high transportation and insurance costs, in addition to competitive conditions in the markets, affected foreign sales. About a quarter of companies indicated a decrease in export orders during October.
In the labor market, companies continued to increase the number of their employees for the fourth month in a row, but the pace of hiring was modest and slower than recorded in September. The volume of outstanding work also increased slightly for the second month in a row, in light of increased sales and some delays associated with supplier deliveries.
In terms of supply chains, suppliers’ delivery times have only improved to a limited degree, the weakest since April, with continued disruptions in sea routes and their impact on deliveries. This prompted some companies to increase their reliance on local sources to secure their needs for production requirements.
Cost pressures
On the other hand, cost pressures escalated at the beginning of the last quarter of the year, as the prices of corporate purchases rose at the fastest pace in six months, driven by increased costs of shipping, insurance, raw materials, and energy. Staff cost inflation also registered its fastest pace since February.
Despite the rise in input costs, the rate of increase in selling prices slowed to the lowest level in nine months, with companies resorting to offering greater discounts in light of the intensification of competition, although prices continued to rise at a strong pace.
Commenting on the results, Nayef Al-Ghaith, chief economist at Riyad Bank, said that the non-oil private sector showed resilience during October, supported by sustainable domestic demand, improved commercial activity, and continued expansion in employment. He pointed out that the index remaining above the 50-point level reflects the continuing improvement in operating conditions, despite its decline from the previous month’s level.
He added that the acceleration of production reflects the ability of Saudi companies to respond to local demand, with the support of operational efficiency, marketing initiatives, and increased sales activity, pointing out that new orders have maintained strong growth, although demand has become more selective.
Al-Ghaith pointed out that the continued increase in employment, inventory accumulation, and purchasing activity reflects the readiness of companies to meet demand, while expectations regarding production during the next year remain positive to a limited degree, but below the general average recorded during the period of monitoring the index.
