Saudi Arabia's non-oil business activity improves in May on output and new orders boost

Customer demand held steady despite an increase in prices

The Riyadh skyline. Saudi Arabia's non-oil private sector grew for 21 consecutive months, as demand withstood higher selling prices. Reuters

Business activity in Saudi Arabia’s non-oil private sector improved strongly in May, amid continued rise in output and new orders.

The seasonally adjusted S&P Global purchasing managers' index — a measure of operating conditions in the non-oil private sector economy — held steady at 55.7 for the second consecutive month in May. A reading above the 50-mark indicates growth, while a PMI under 50 represents contraction.

The latest data indicated kingdom’s non-oil private sector growth for 21 consecutive months, as demand withstood higher selling prices. However, the latest reading was below the series average of 56.8.

“The continued strength of the domestic non-oil economy encouraged firms to pass-through higher input costs to their customers in May, with the latest PMI data indicating another solid increase in selling prices due to greater fuel, material and transport costs,” said David Owen, an economist at S&P Global Market.

“Customer demand appears to be responding well to price mark-ups so far, with another marked increase in new orders recorded in May, leading to a robust expansion in business activity.”

The International Monetary Fund estimates the Saudi economy will expand 7.4 per cent this year, driven by higher oil revenue, a projected improvement in the country's non-oil gross domestic product and its efforts to diversify the economy.

Continued recovery from the Covid-19 pandemic also underpinned the kingdom’s economic growth, which the World Bank estimates will be 7 per cent this year. Jadwa Investment expects the economy to expand 7.7 per cent in 2022.

Output across Saudi Arabia's non-oil private sector continued to increase sharply midway through the second quarter, but at the slowest rate since January. With rising output, companies also recorded higher sales and improving demand conditions.

New business orders rose at a slightly quicker pace than in April, with nearly a third of companies surveyed highlighting increased sales over the month pandemic-related restrictions were eased.

Companies also reported a rise in new export orders for the third consecutive month in May, although the rate of growth was softer than for orders for domestic sales.

Employment increased for the second straight month in May, the PMI data showed.

Private companies also faced increases in fuel, materials and freight prices last month, in line with rising inflation globally. Input costs rose at the second-quickest pace in a year and a half, slower only than the sharp rise in March, following Russia's military offensive in Ukraine.

“The strong uplift in client sales meant that businesses remained in a position to pass on higher costs to their customers, indicated by a further solid increase in output charges,” the report said.

Companies' outlook for business activity in the year ahead picked up in May for the first time in three months.

Meanwhile, Egypt's non-oil private sector activity contracted further in May as higher commodity prices, a stronger US dollar and import restrictions weighed on businesses.

Egypt's PMI rose to 47 in May, up slightly from 46.9 in April, but still below the neutral mark of 50. The latest reading marked the 18th consecutive monthly decline in operating conditions.

New orders declined at quickest pace in nearly two years and output fell.

“Non-oil business conditions in Egypt remained pinned down by rapid inflationary pressures in May, as survey panellists indicated that rising market prices led to a sharp drop-off in demand and a further increase in business expenses,” Mr Owen said.

“Price pressures were at their highest level for six months. Firms often commented that a strengthening of the US dollar added to the burden of incredibly-high commodity prices from the war in Ukraine and the prevailing effects of the Covid-19 pandemic.”