Saudi Arabia's non-oil private sector robust after new order boost

Output increased as the kingdom's non-oil private sector economy expanded for the 26th successive month

The skyline of Riyadh. Saudi Arabia's non-oil private sector economy maintained strong growth momentum in October. EPA

Business activity in Saudi Arabia's non-oil private sector economy continued to improve in October, driven by a sharp rise in output and new orders as business optimism grew, despite global macroeconomic headwinds.

The Riyadh Bank Saudi Arabia purchasing manager’s index climbed to 57.2 in October, up from 56.6 in September, underpinning the robustness of the country's non-oil private sector economy , which is still in expansion mode for the 26th successive month.

The October PMI level was the second highest this year, only slightly below that recorded in August.

A reading above the neutral level of 50 indicates growth while one below it points to a contraction.

“Business activity and new orders rose sharply again, with firms seeing client demand strengthen at a robust rate,” said Naif Al-Ghaith, chief economist at Riyadh Bank.

“This was helped by a softening of price pressures; input costs rose at the slowest pace since February, which translated into only a modest uptick in selling charges.”

Output and new orders, the two largest components of the headline PMI index, expanded significantly both in terms of activity and sales at the beginning of the fourth quarter.

Businesses surveyed said improving market conditions drove the increase in new work, while ongoing projects also supported increased output volumes.

Sales growth was supported by rising demand from foreign markets in October, as new export orders climbed at the sharpest rate in almost a year.

The upturn was "broadly aligned with the trends seen since the survey began in August 2009", Riyadh Bank said.

Business recorded growth across sectors in the latest survey period, with output expansion in manufacturing, construction, wholesale and retail and services sectors. Goods producers recorded the strongest upturn in October.

Employment in the kingdom's non-oil economy rose slightly, while inflationary pressures softened notably in October, with companies reporting the slowest rise in input costs for eight months.

Only 4 per cent of respondents noted higher expenses since September, as wage costs were broadly stable after seven consecutive months of a rise in inflation. Output charges subsequently rose only modestly, with upticks led by wholesale and retail and services companies.

Saudi Arabia's economy bounced back strongly from the pandemic-driven slowdown last year. The economic momentum has picked up pace this year driven by growth in the oil and on-oil sectors.

The kingdom's economy expanded 8.6 per cent in the third quarter of 2022, as higher oil prices and government reforms propelled growth, the General Authority for Statistics (Gastat) said in its flash estimates report this week.

Oil activities grew 14.5 per cent in three months to the end of September, higher than 9.3 per cent recorded a year earlier, Gastat said.

Non-oil activities grew by 5.6 per cent year on year, down from 6.3 per cent growth in the third quarter of 2021.

The kingdom has now posted six straight quarters of economic expansion after the Covid-19 pandemic stalled activities. However, third-quarter growth was lower than the 12.2 per cent the economy posted in the previous three-month period.

International Monetary Fund managing director Kristalina Georgieva described the kingdom as a “bright spot amidst the global turmoil” at the meeting of the financial and economic co-operation committee of the GCC last month.

Businesses also expect operating conditions in the kingdom's non-oil private sector economy to remain robust over the next 12 months as economic momentum continues.

"Saudi Arabian non-oil businesses signalled a strong degree of confidence in future economic conditions in October," Mr Al-Ghaith said.

"The outlook for the next 12 months rose to its highest level since the beginning of 2021, as firms suggested that the current robust level of growth is likely to continue."