Saudi and UAE business environment improve as inflation falls and job creation increases.

In the United Arab Emirates and Saudi Arabia, business conditions improved in July as pricing pressures eased marginally and employment increased.

According to S&P Global, input costs in the Arab world’s two largest economies have fallen somewhat after reaching an 11-year high in June. Its Purchasing Managers’ Index for the UAE was at 55.4, up from 54.8 during the previous month and well above the 50-mark separating growth from contraction. The Saudi PMI stood at 56.3 in July, down from 57.

Despite rising price pressures, the Gulf area has seen relatively low inflation, due in part to local fuel cost caps in several countries. Nonetheless, governments like as Saudi Arabia and the United Arab Emirates have had to set aside billions of dollars in inflation relief to assist low-income residents and stockpile vital supplies.

“Inflation is the largest problem for non-oil firms in the UAE,” said David Owen, economist at S&P Global. “While the latest figures indicated a milder increase in overall input costs, the rate of increase was the second-fastest in four and a half years, owing to global input shortages and higher prices for gasoline, materials, and shipping.”

In Saudi Arabia, employment levels rose for a fourth month, helped by a rapid increase in new business orders. The rate of job creation in the Kingdom was the fastest since September 2019 and wages rose at the strongest pace since early 2018.

“New business continued to rise substantially, helped by recovering demand and strengthening export sales,” said Owen.

“As a result, output expanded sharply and employment numbers rose at the fastest pace since September 2019, following a period of weakness in labor markets since the COVID-19 pandemic began.”

Countries in the region largely track the US Federal Reserve’s policy decisions to maintain their currencies pegs to the dollar. Last month, central banks across the six states comprising the Gulf Cooperation Council followed the Fed in raising interest rates.

Saudi PMI

Expansion in the kingdom’s non-oil private sector was partially due to rising sales led by stronger export demand and better market conditions.

Firms still faced an increase in costs, with oil and material prices driving inflation. Optimism regarding future activity slipped slightly but was still strong overall.

UAE PMI

Companies increased output, with the pace of expansion being the joint-fastest this year.

Employment levels rose only slightly as firms responded to rising backlogs.

Sentiment fell to a 10-month low but companies were optimistic about the coming year.