Business conditions in Saudi Arabia’s non-oil private sector improved at its fastest pace in six months in October as sales reported a sharper increase, which supported further expansions in business activity, employment, purchasing activity, and stocks.
However, the robust improvement across the sector came with an increase in cost pressures for both materials and staff, which in turn led to the first increase in average prices charged for four months.
PMI reading strongest in six months
The headline seasonally adjusted Riyad Bank Saudi Arabia Purchasing Managers’ Index (PMI) rose for the third month in a row in October to 56.9 from 56.3 in September. The reading was the strongest in six months, signaling another sharp upturn in operating conditions across the non-oil private sector.
“This growth is part of a steady expansion trend since September 2020, driven by increasing demand and aligning with the goals of Vision 2030. The comprehensive sectoral gains reflect a strong business environment, supported by government initiatives and heightened private sector engagement, aligning with ongoing projects under Vision 2030 that aim to diversify the economy and reduce reliance on oil,” stated Naif Al-Ghaith PhD, chief economist at Riyad Bank.
Stronger sales drive expansion
The PMI report attributed the rise in Saudi Arabia’s non-oil sector growth to a stronger increase in sales volumes in October, as businesses commented on higher client demand and a general uplift in economic conditions. New customer arrivals, successful marketing strategies, and increased infrastructure development were also among the factors that supported the growth in business activity levels.
“The significant increase in new orders this month, with the New Orders Index reaching its highest point since March, underscores the success of Vision 2030’s strategic focus on innovation and infrastructure development,” added Al-Ghaith.
The survey data continued to signal a broad-based expansion, with the four main sectors monitored all noting a sharp upturn. In addition, firms continued to give a positive outlook for future activity, with optimism climbing from the previous month.
Labor capacity rises
Saudi Arabia’s non-oil sector also raised its labor capacity in October with firms taking on extra workers for the sixth successive month. This enabled businesses to remain on top of workloads and curtail their levels of work-in-hand. Although the pace of job creation remained stronger than average, it eased for the second month in a row, partly due to a reduction in staff in the construction sector.
“With this ongoing expansion, the non-oil sector’s contribution is projected to exceed 52 percent of the overall GDP and grow beyond 4 percent in 2024, reflecting the successful implementation of Vision 2030 and its associated projects,” he added.
Read | GASTAT: Saudi Arabia’s real GDP grows by 2.8 percent in Q3 2024
Salary inflation picks up
October saw an uptick in price metrics, as increases in material costs and wages underscored a solid rise in overall input costs. The rate of salary inflation across Saudi Arabia’s non-oil sector was particularly notable, with the respective index at one of its highest levels in the survey’s history.
Consequently, total input price inflation rose at the sharpest pace since the beginning of the year, leading to the first increase in average prices charged in four months. The moderate rise in charges was also the strongest since January. However, it was largely based on the manufacturing, and wholesale and retail sectors. Construction and services firms continued to offer discounts on their prices, with survey comments often showing that market competition remained a key threat to sales volumes.
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