Riyadh – Mubasher: Saudi Arabia's non-oil private sector economy witnessed a renewed drop in business conditions in August 2020, after stabilising in July.
The economy fell back into a downturn as firms registered a solid drop in new business, partially attributed to the hike in value-added tax (VAT) charges and ongoing social distancing measures.
Both of business activity and employment declined, while the tax rate change led to the sharpest increase in output charges for 11 years.
The headline seasonally adjusted IHS Markit Saudi Arabia Purchasing Managers’ Index (PMI) fell to 48.8 in August from the neutral 50 threshold in July, signalling a renewed deterioration in the non-oil private sector economy.
“With business levels remaining weak in August, Saudi Arabia companies made further efforts to reduce capacity. Output was lowered for the sixth month running, as was employment. That said, both recorded relatively modest declines, with the fall in workforces the slowest since May,” the IHS report said.
The rise in VAT from 5% to 15% impacted prices in the private sector economy, with firms reporting the sharpest uptick in input costs since September 2012, as suppliers increased prices for raw materials.
“The lasting effects of the COVID-19 crisis were also apparent, with plenty of businesses noting that consumer confidence remained weak despite efforts to reopen the economy. Some areas saw an improvement though, especially with firms highlighting a pick-up in tourism,” remarked IHS Markit’s Economist, David Owen.
"Business confidence strengthened to its highest for six months while inventories also expanded, suggesting there are positive signs for future growth," Owen concluded.
