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Despite sustained improvement in business activity, competitive pressures, and challenging weather conditions dampened growth in Saudi Arabia’s non-oil business activity, with the kingdom’s Purchasing Manager’s Index (PMI) dropping to its lowest recorded level since January 2022.
The Riyad Bank PMI dropped for the third consecutive month, reaching 54.4 from the 55.0 recorded in June, but was still above 50.0 neutral mark, signalling a soft improvement in operating conditions across the Saudi Arabian non-oil private sector.
The start of Q3 saw both output and new orders expand to a lesser extent. Output growth slipped to a six-month low, while new orders rising at the least pronounced pace since January 2022.
However, survey comments indicated that demand conditions were favourable, driving higher sales and improved output across each of the sectors covered by the survey.
Areas of weakness were primarily linked to capacity pressures stemming from heatwaves and greater market competition, which led non-oil businesses to reduce their selling prices, despite a further increase in underlying input costs. The decrease was not only the first recorded in nine months, but also the fastest observed since the survey began in 2009.
Purchasing activity rose at the strongest rate in three months in July, with the rate of expansion picking up from its lowest point June, as increasing client demand spurred firms to keep robust quantities of inputs in stock.
Employment numbers across the non-oil private sector also increased in July, marking a third successive month of expansion, albeit at a modest pace.
Naif Al-Ghaith, Chief Economist at Riyad Bank, said the combination of steady demand, competitive pricing, and expanding exports paints a positive outlook for Saudi Arabia’s economic growth.
Despite extensive competition in the market leading to a downward pressure on prices, Al-Ghaith said companies are striving to maintain their market share by offering more attractive pricing to consumers.
“Additionally, new exports have continued to expand, signalling a further increase in net non-oil trade. This expansion in exports suggests that Saudi businesses are successfully penetrating international markets, which bodes well for the diversification of the economy away from oil dependency,” he added.
Business confidence towards the year-ahead outlook was “mildly upbeat”, with higher client demand, healthy work pipelines and increased government investment cited by firms with a positive outlook.
(Writing by Bindu Rai, editing by Seban Scaria)
