Dubai: Saudi Arabia’s Purchasing Managers’ Index (PMI) rose to 58.7 in August from 57.7 in July, signalling faster expansion in the non-oil private sector last month.

The PMI reading was the highest since March and indicates improving business conditions in the Kingdom after the slowdown evident in the second quarter of 2015.

New orders rose at a faster pace in August, with this subindex rising to 64.8 from 63.1 in July. Business Activity also grew at a faster pace last month, with the subindex rising to 65.8 from 65.1 in July. Both new orders and business activity readings are well above the neutral 50-level, signalling very strong growth.

Export orders increased in August, but at a slower rate than July. Firms boosted employment in response to higher order growth, with the pace of hiring the fastest since March 2015.

Input costs rose again in August, but at a slower pace than July, with growth in purchase prices and staff costs moderating last month. Output prices showed a very marginal decline in August, as firms cited increased competition.

Activity in the non-oil sector does not appear to have been affected by the decline in oil prices since June. Additionally increased oil production in the Kingdom has likely boosted activity in the related manufacturing sectors.

Bloomberg estimates that oil production in Saudi Arabia is more than 5 per cent higher year-to-date, compared with the whole of 2014.

“We expect Saudi Arabia to maintain high levels of oil output regardless of the price, which should continue to underpin activity in the non-oil sectors through the rest of this year,” said Khatija Haque, Head of Mena Research at Emirates NBD.

Activity in Egypt’s monthly PMI improved to 51.2 in August, which represents the best reading so far in 2015. The survey was broadly encouraging, particularly as it reverses the decline seen in the July PMI of 49.2.

The Output Index jumped to its highest level in nearly one year at 52.8, compared to 49.5 the previous month. New contract wins were behind the strengthening in demand conditions, according to the survey compiler Markit, which helped push the New Orders Index to an eight-month high of 52. Overall, the August PMI suggests that Egypt’s economy might not be as weak as July’s survey seemed to indicate, and the key challenge will now be to sustain this positive momentum through the remainder of the year.

Stronger domestic demand conditions appears to be the main factor behind the overall improvement in the PMI, as the new export orders index fell to 49.2 in August. Firms cited a lack of stability in key markets in the Middle East as the reason behind the slowdown in exports, which might indicate that external demand will provide little support to broader economic growth in the near term.