Saudi Arabia’s non-oil sector has recorded a significant growth in August, as the Riyad Bank’s Purchasing Managers Index (PMI) showed.
The growth in non-oil sector marked the first since February. The improvement in business conditions was mainly driven by a growth in employment, as companies have put increased efforts to build their operating capacity.
Business Activity
Saudi Arabia’s PMI rose to 54.8 in August, from 54.4 in July, reflecting an expansion in business activity in the Kingdom’s non-oil private sector. Moreover, purchasing activity and stock levels surged among stronger business expectations and a slight increase in new orders.
The PMI measures the average of 5 indices: New Orders (30%); Output (25%); Employment (20%); Suppliers’ Delivery Times (15%) and Stocks of Purchases (10%).
The slight increase in the PMI underscores the steady expansion in business activity, despite some challenges posed by the competitive market environment. Owing to greater inflows of new business, Saudi non-oil companies boosted activity levels at a strong pace in mid-August.
Commenting on the PMI data, the Chief Economist at Riyad Bank, Naif Al-Ghaith, said: “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.”
He added that the PMI figure “further emphasizes the steady expansion of business activity, despite the challenges posed by the competitive market environment.”
Employment Boom
Robust job creation was a key driver of the expansion in non-oil sector business activity. Employment numbers experienced a significant increase at one of the sharpest rates in a decade. This rise in hiring reflects businesses efforts to increase their operating capacities, in order to meet growing market needs.
The report noted that these positive indicators, along with a significant rise in future output expectations, highlight a robust optimism within the private sector. Survey respondents pointed to receiving orders from existing and new customers, as well as benefiting from increased government investment. Additionally, companies reported a significant improvement in foreign sales.
With regards to this, Al-Ghaith said: “The increase in new export orders, although slower than the overall growth, shows that Saudi companies are finding opportunities abroad, despite facing tough competition in international markets. This expansion in exports is crucial for the Saudi economy as it works to diversify away from oil dependency and strengthen other sectors.”
Slower Pace
Despite the positive indicators, the PMI remained below its long-run average of 56.9 and was at one of its lowest levels since the beginning of 2022. The report noted that the overall activity and new business growth remained weak compared to the past few years.
As a result, some companies reduced their selling prices for the second consecutive month in August, in an attempt to re-boost demand.
“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,” Al-Ghaith said.
Future Prospects
The report revealed that non-oil firms were more optimistic about future activity, with expectations for the next year rising to the highest level since March. Respondents showed optimism about sales pipelines, and predicted a boost in output resulting from investment, tourism and population growth.
This has driven companies to increase capacity expansion efforts, mainly through an uptick in hiring activity. In August, employment saw the biggest growth since early 2015.
Al-Ghaith praised Saudi Arabia’s efforts to diversify its economy and reduce reliance on oil revenues. He said: “This competitive landscape is a testament to the strength of Saudi Arabia’s non-oil economy. The Kingdom’s Vision 2030 initiative, aimed at reducing reliance on oil revenues, is bearing fruit as the non-oil economy continues to grow driven by a combination of domestic reforms and global economic integration.”
