Saudi private sector deteriorates, extinguishing hopes of recovery

Saudi Arabia's private sector deteriorated last month, as low oil prices, the coronavirus epidemic, and new tax hikes batter the kingdom's economy, agencies reported on Thursday.

The disappointing figures of an ecnomic slowdown in the private sector will be disappointing for Riyadh, after welcoming signs of recovery in July.

The IHS Markit Saudi Arabia Purchasing Managers’ Index (PMI) showed a decline to 48.8 from 50.0 in July, but it again slipped below the 50 mark in August.

"After stabilising in July, the economy fell back into a downturn as firms registered a solid drop in new business, in part linked to the rise in VAT charges and ongoing social distancing measures," the IHS report said, according to Reuters. The decline comes after Saudi Arabia sharply increased VAT from 5 to 15 percent, which many predicted would lead to decreased consumer spending.

Businesses reported a massive increase in costs, as prices for raw materials and other items increased.

"Newly-imposed VAT changes stalled consumer spending across the Saudi Arabia economy in August, latest PMI data suggested," said David Owen, economist at IHS Markit, according to the news agency.

"New business was down solidly from July, as several firms commented that the sharp uptick in prices kept some customers away from markets."

The Saudi private sector has seen months of poor performance due to low oil prices and the coronavirus epidemic, which saw flights grounded and lockdowns enacted.

The government has aided businesses by having banks extend debt repayment dates but the sharp hike in taxes and effects of Covid-19 appear to have dampened public spending.