Saudi Arabia’s non-oil sector experienced a notable uptick in growth momentum in February, as business activity rose at the quickest rate for five months following a slump to a two-year low in January. The latest data from the Riyad Bank Saudi Arabia Purchasing Managers’ Index (PMI) indicates a sharp improvement in operating conditions across Saudi Arabia’s non-oil private sector economy, driven by accelerated business activity and strengthened new order growth.
New orders
Saudi Arabia’s headline PMI surged from January’s low of 55.4 to 57.2 in February, well above the 50.0 mark that separates growth from contraction. Business activity in Saudi Arabia’s non-oil sector increased at a sharp and accelerated rate, reaching its highest level since September 2023. Surveyed firms attributed this uptick to improving client demand and signs of increased tourism activity. Moreover, new order inflows also picked up pace, driven by new client wins and stronger market conditions. However, some firms noted sales declines amid heightened competition.
This resurgence reflects continued growth in Saudi Arabia’s non-oil sector which recorded a 4.6 percent increase according to GSTAT flash estimates, explained Naif Al-Ghaith PhD, chief economist at Riyad Bank. “The survey results also signaled expectations of a modest recovery in demand this year driven by the acceleration of Vision 2030 projects,” he added.
Employment
The growth in output and new business in Saudi Arabia’s non-oil sector bolstered labor demand, with February witnessing one of the fastest increases in employment in the past eight years. Firms grew more optimistic about future demand trends, reflecting strengthened confidence in the economic outlook. In addition, purchasing activity remained robust as companies ensured steady inflows of inputs and secured discounted prices with suppliers, leading to the sharpest increase in inventory levels since August 2022, in addition to notable improvement in delivery times.
Moreover, with stocks accumulating and staff levels rising, companies made a substantial cut to their outstanding work. This comes after Saudi Arabia recorded a rise for the first time in 20 months in January. Some respondents added that an easing of administrative requirements supported workflows.
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Price dynamics
Despite ongoing input cost inflation, the rate of inflation softened in February, marking the slowest pace since July 2023. This supported growth in Saudi Arabia’s non-oil sector. Purchase prices and staff costs also increased to a lesser extent compared to previous months. Moreover, selling price inflation cooled down to marginal levels, with firms navigating between passing on higher costs to customers and reducing fees to mitigate competitive pressures. This dynamic resulted in softer charge inflation, indicating a challenge to maintain margins amidst rising costs.
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