Along with the U.S., business activity in the Gulf is expanding at the fastest pace in the world, according to the purchasing managers’ index (PMI) compiled by Markit.
The index is based on monthly questionnaires regarding business conditions answered by purchasing executives in different sectors.
According to the PMI survey, global business activity kept on expanding at a good pace in August – a reading above 50 indicates a higher number of respondents reporting “better conditions” than “worse conditions”, hence an expansionary business environment.
In fact, the outlook for the world economy is the best it has been in more than three years.
Excluding Great Britain, the survey shows business conditions are the best in Saudi Arabia, where the non-oil producing private sector PMI reached a 37-month high of 59.4 in August.
The only other Gulf Cooperation Council (GCC) country for which PMI is estimated is the United Arab Emirates (UAE), and it shows a non-oil private sector that is outperforming the world after it hit 58.4 in August, its second highest level on record.
Against this backdrop, Asiya Investments, an investment firm investing in Emerging Asia, in its latest weekly analysis, said business activity has been gaining traction in Saudi Arabia in the last few months as a result of the robust growth in the consumer sector – cash withdrawals from ATMs have been at all-time highs.
The increase in Saudi Arabia’s non-oil private sector PMI in August was the third consecutive sequential pick-up.
According to the survey, the improvement didn’t only come from better domestic conditions.
Stronger demand from abroad also led to the increase in activity.
New export sales rose by the fastest pace in six months. The gradual increase in output and new orders also boosted the labor market, as shown by the net employment PMI sub-index hitting the highest level since March 2013.
In the UAE, unlike Saudi Arabia, non-oil private sector conditions have been improving since late 2011.
Increasing external and domestic demand has led to the high PMI levels, with growth in new export orders hitting a record high and credit growth picking up for the first time in the last five years.
Although the recent improvement in global economic conditions has reinforced the Saudi Arabian and the UAE economies, their domestic sectors are playing a major role behind the countries’ stabilities, both consumer and corporate led.
No change in trend is expected in the near term as high levels of new orders and employment are expected to continue driving the expansion in business activity.
Business confidence has considerably increased across the world compared to two years ago, according to the composite world PMI.
The PMIs of major economies, including emerging markets, were all in expansion in August.
Among the developed nations, US PMI is expanding at the fastest pace even though it slowed in the last two months leading to August.
Business conditions in the euro zone have increased much more in the last twelve months, but remain much lower than in the U.S.
The better sentiment has been led by the ECB’s loosening monetary policy despite economic performance remaining sluggish.
Japan, the third largest developed economy, is still witnessing a much lower PMI than its peers but successive sequential PMI upticks since April indicate a gradually recovering economy.
Emerging markets are also experiencing divergent business conditions.
The worst performing economies, the non-Asian emerging markets excluding the Gulf, continue to be rather weak but slowly recovering according to their respective PMIs. They include Turkey and Brazil.
Emerging Asian nations, such as China and India, are expanding at a faster pace, but still look weak compared to global standards as businesses expect more measures from their governments.
The GCC, represented by Saudi Arabia and the UAE, has the best business outlook among emerging markets.
Secured with large fiscal surpluses, due to stable oil receipts, and supported by a wealthy consumer base, businesses continue to be very optimistic about short-term prospects despite the increasing geopolitical turmoil in the region.
Accordingly, their markets have rallied, and are expected to keep heading upwards as business sentiment remains strong.
This article was first published in Saudi Gazette Monday, Sep. 08, 2014.