(Bloomberg) — Business conditions in Saudi Arabia and the United Arab Emirates improved the most in years, signaling that recoveries may be taking hold in the Arab world’s two biggest economies.
In May, Saudi Arabia’s Emirates NBD Purchasing Managers’ Index rose to its highest since December 2017. A similar gauge for the U.A.E. posted its best reading since October 2014. Both moved further above the threshold of 50 that separates contraction from growth, reaching 59.4 in the U.A.E. and 57.3 in Saudi Arabia.
In the U.A.E., the improvement was “partly due to external demand, particularly from Saudi Arabia and Oman,” Khatija Haque, head of Middle East and North Africa research at Emirates NBD, said in a report on Monday. Output and new export orders in OPEC’s third-biggest producer expanded the fastest on record.
Even as oil has fallen from a peak in late April, the impact of stronger crude prices may be starting to feed through to the Gulf’s energy powerhouses. A united front from the Organization of Petroleum Exporting Countries and its allies is helping to restore some stability to oil despite deteriorating U.S.-China trade relations and rising tension in the Middle East.
In Saudi Arabia, growth quickened in output and new orders, with companies citing “stronger underlying demand conditions,” according to Haque. “The rebound in the headline PMI this year suggests that the private sector is starting to benefit from higher oil prices and the resulting improvement in the government’s fiscal position,” she said in a separate report.
Discounting probably also supported the gains in new work and output in the U.A.E., with selling prices falling for an eighth consecutive month. Job growth remains stagnant, however, as competition reduced margins and forced companies to look for savings elsewhere.
Fewer than 1% of U.A.E. firms surveyed in May said they increased their headcount even as more than half reported higher output. Wages also remained “broadly unchanged,” according to Emirates NBD.
“The rebound in activity this year has not yet translated into job growth, or higher wages,” Haque said. “This is likely to weigh on expat population growth and household consumption.”