PHOTO
Improved business conditions and employment growth resulted in a strengthening of Saudi Arabia’s non-oil private sector in August, but the Purchasing Manager’s Index (PMI) continued to remain at one of its lowest levels since the beginning of 2022.
The Riyad Bank PMI rose to 54.8 in August, up from July’s 54.4, and was still above 50.0 neutral mark, signalling a soft improvement in operating conditions across the Saudi Arabian non-oil private sector.
However, the index was still below its long-run average of 56.9, largely due to non-oil private sector output increasing at one of the weakest rates since the beginning of 2022.
According to the survey, job creation has been the driving factor in strengthen business conditions, with employment numbers rising at one of the sharpest rates in a decade. Historic data reveals that apart from a peak observed in October 2023, employment grew at the sharpest pace since early 2015 in August.
Business activity levels also indicated a level of robustness, with new orders and increased government investment driving momentum. Companies also reported an uplift in foreign sales.
Yet, despite this new drive, new business growth remained subdued in August, compared to the rates observed over the past couple of years. This partly reflected difficulties at some firms to improve sales as markets become more competitive.
In order to maintain demand strength, non-oil companies reduced selling prices for the second consecutive month in August, albeit to a slightly lesser degree than in the prior survey period. August survey data signalled that non-oil firms were more upbeat about future activity, with expectations for the year rising to their strongest since March.
“Saudi Arabia’s non-oil sector continues to demonstrate economic resilience, underscored by a robust 4.4% increase in non-oil GDP in Q2 2024, reflecting the ongoing success of the kingdom’s diversification efforts,” said Naif Al-Ghaith PhD, Chief Economist at Riyad Bank.
“Employment growth has been a key driver of this momentum in August, signalling those businesses are increasingly confident in their expansion plans. The uptick in new orders illustrates the sector’s capacity to meet growing market needs. These positive indicators, coupled with a significant rise in future output expectations, highlight strong business optimism within the private sector,” he added.
Al-Ghaith also stressed that new export orders, although slower than the overall growth, is indicative of Saudi firms finding opportunities abroad, despite facing tough competition in international markets.
“The competitive nature of the market is exerting pressure on firms to reduce prices in an effort to stimulate sales, indicating that while the sector is growing, businesses must remain agile and responsive to maintain their market position,” he said.
(Writing by Bindu Rai, editing by Seban Scaria)
