Business activity across Saudi Arabia’s non-oil sector continued to improve in June as companies raised their output levels to support sales and projects. The expansion in business activity came despite further evidence of softening demand prospects, as the growth of new order intakes dropped to its weakest level in nearly 2.5 years.
Businesses in Saudi Arabia’s non-oil sector reported the slowest rise in input purchases in nearly three years as they looked to temper recent surges in stockpiles. Meanwhile, job creation growth also softened from May. In addition, some businesses reported that discounts had weighed on overall selling prices and opposed efforts to pass on a solid increase in input prices.
The seasonally adjusted Riyad Bank Saudi Arabia Purchasing Managers’ Index (PMI) fell for the second month straight in June, dropping to 55.0 from 56.4 in May.
Export sales surge
Saudi Arabia’s non-oil sector reported an increase in new order books particularly due to a solid increase in export sales which grew at the fastest rate so far this year. However, the decline in Saudi Arabia’s PMI was mainly due to a weaker rise in new order volumes, which slowed for the third consecutive month to its lowest in nearly 2.5 years.
While some non-oil businesses reported stronger demand, new client intakes, and business development spending, others signaled a softening of market conditions. Despite easing in new order growth, non-oil businesses continued to report a notable increase in activity with June data pointing to a strengthening of growth.
“Looking at the second quarter as a whole, the growth figures for Q2 still indicate a positive outlook for non-oil GDP in Saudi Arabia, with expectations of growth exceeding 3 percent. The overall performance of non-oil sectors throughout the quarter continues to drive economic growth and diversification efforts in the country,” stated Naif Al-Ghaith, chief economist at Riyad Bank.
Employment remains resilient
With output requirements growing, businesses in Saudi Arabia’s non-oil sector reported an increase in their staffing numbers. However, amid some evidence of companies placing tighter constraints on operational costs due to wage pressures, the rise in staffing was only modest and slower than in May.
Read: Saudi Arabia’s unemployment rate stabilizes at 3.5 percent in Q1: GASTAT
Price pressures persist
The latest PMI data revealed another increase in prices in June as the need to pass on cost increases continued to be offset by discounting efforts amid strong competition.
The suppressed rate of charge inflation occurred despite overall input prices rising at their fastest pace in four months. Businesses in Saudi Arabia’s non-oil sector cited wages, materials, and technology costs as drivers of price pressures.
For more economy news, click here.
