Saudi Arabia’s non-oil private sector continued to grow at a steady pace in May, with the Kingdom’s Purchasing Managers’ Index (PMI) reaching 56.4. This represents a slight decline from 57 in April, according to official data.
The Riyad Bank Saudi Arabia PMI report by S&P Global indicated that business activity in the country rose at a substantial rate in May, extending a period of robust output growth across the non-oil economy. In March, the PMI stood at 57, while it was 57.2 in February and 55.4 in January.
S&P Global noted that a PMI reading above 50 signals growth in the non-oil sector, while a reading below 50 indicates contraction.
Increasing demand drives growth, but challenges remain
Naif Al-Ghaith, chief economist at Riyad Bank, commented on the positive trend, stating that it was “driven by increasing demand as evidenced by the rise in new orders.” This growth necessitated an increase in employment to meet the growing demand for goods and services.
However, Al-Ghaith also acknowledged the challenges faced by businesses, as the surge in demand has led to price pressures impacting input prices and staff costs, although the increase in output prices has been observed at a slower pace. He described this as a “balancing act” for companies in managing costs while capitalizing on the expanding market.
Strategic inventory management and purchasing behaviors
The report highlighted that business activity and new order growth in the Kingdom remained steep in May, amid further reports of strong demand conditions, especially in domestic markets. Robust inventory growth continued as companies sought to prepare for strong sales performances in the future.
Al-Ghaith noted that the rise in inventory levels and prices has prompted firms to adjust their purchasing behaviors to align with their sales strategies, indicating a strategic response to the changing market dynamics and the need to maintain a sustainable business model.
Broad-based expansion across sectors
The PMI survey also noted that companies reported increasing their activity due to strong demand conditions and efforts to fulfill pending workloads. Business growth was broad across the monitored sectors, with construction noting the sharpest expansion.
Increase in employment levels
Furthermore, companies operating in the non-oil private sector increased their employment levels in May, primarily driven by higher workloads, offsetting the first decline in over two years in April.
Al-Ghaith emphasized that Saudi Arabia’s efforts to diversify the Kingdom’s economy will strengthen the growth of the non-oil gross domestic product. He noted that the latest flash estimates and forecasts suggest a continuation of the upward trajectory, with the non-oil GDP growth expected to exceed 3 percent, driven by ongoing efforts to diversify the economy in line with Vision 2030.
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