Business activities in Saudi Arabia's non-oil private sector slowed during May as growth in new orders and output eased, a new business survey revealed on Monday.  However, rate of job creation picked up to the joint-fastest since the beginning of 2018.

At 58.5 in May, the headline Purchasing Managers Index (PMI) dropped from 59.6 in April amid downward movements in the index's two largest components - New Orders and Output. Nevertheless, the index remained well above the 50.0 growth threshold and was higher than its long-run average of 56.9.

The Riyadh Bank PMI highlighted that new order inflows at non-oil private sector businesses continued to rise considerably in May, after growth quickened to its highest in just over eight-and-a-half years in April. The rate of expansion slowed slightly, despite a renewed upturn in sales from foreign clients.

"While a slower oil economy and rising interest rates will create a challenging environment for some establishments, most Saudi firms are in good shape and experiencing robust business conditions," Naif Al-Ghaith, Chief Economist at Riyad Bank, said.

"May results show a small retracement from the strong April outcome, reinforcing the view that overall economic activity is holding up well as we enter the summer months," he added.

Activity levels also rose markedly in May, although the rate of expansion softened and was the weakest recorded in 2023 so far, the survey said.

Firms increased their purchases of inputs and key components sharply but to the least extent for five months.

Employment growth was relatively strong, with the rate of job creation picking up to the joint-fastest since the beginning of 2018.

“New orders grew considerably, reflecting a strong demand growth, particularly in tourism activities and construction. This led to the joint-fastest rate of job creation since 2018, which allowed firms to work through backlogs at a quicker pace this month,” Al-Ghaith said.

Higher employment and activity levels allowed firms to work through backlogs at a quicker pace during May.

Business expectations for the next 12 months eased slightly but still indicate optimism regarding future output.

"The government continues to implement large scale diversification policies and accelerate the development of giga-projects, aiming to boost the private sector, the engine for job creation," Al Ghaith added. 

(Writing by Seban Scaria; editing by Daniel Luiz)

(seban.scaria@lseg.com)