The reading on the Riyad Bank Saudi Arabia purchasing managers' index came in at 56.9 last month, slower than the 58.5 recorded in November, but still well above the neutral 50 mark that separates growth from contraction.
Despite the lower headline reading, businesses linked the rise in activity to higher sales and improving market demand, with new order inflows rising sharply and 30 per cent of surveyed companies reporting growth, compared with the previous month.
The acceleration in sales growth drove businesses in the kingdom to increase hiring in December to boost operating efficiency.
The rate of job creation was the fastest recorded since January 2018, while the increase in staffing capacity helped companies to reduce outstanding work for the seventh month running.
“Job creation in the non-oil sector has never been this strong in almost five years. This is attributed to the ongoing reforms that support the private sector under the Saudi Vision 2030,” said Naif Al-Ghaith, chief economist at Riyad Bank.
“We see operating conditions remaining favourable in December, characterised by rapid growth in the non-oil activities and a robust labour market by the end of 2022, with both jobs and wages having far more momentum than previously thought.”
Saudi Arabia's preliminary estimates for 2023 indicate a real gross domestic product growth rate of 3.1 per cent, after an expected expansion of 8.5 per cent last year, Finance Minister Mohammed Al Jadaan said last month as the government approved the budget for this year.
The kingdom will continue to spend on major projects and programmes related to its Vision 2030 economic transformation plan that seeks to diversify the Arab world's largest economy and reduce its reliance on hydrocarbons, Saudi Crown Prince Mohammed bin Salman said last month.
Strong growth in the kingdom's non-oil GDP will continue this year and “ongoing economic reforms, ambitious government strategies/initiatives, acceleration in mega/giga projects and the vital role played by national funds will be the economy’s main drivers, shielding it from the global recessionary pressures”, the Saudi National Bank, the country's largest bank by assets, said in a research note on Sunday.
Unlike record inflation rates that hit four-decade highs in the US and Europe, prompting central banks globally to raise interest rates, the kingdom had relatively low inflation last year.
Inflation is projected at 2.1 per cent in 2023, according to government forecasts.
“The increase in interest rates has been offset by the rapid growth, which is expected to be near 9 per cent for 2022,” Mr Al-Ghaith said.
Prices in the kingdom “are expected to ease in the upcoming year, with the anticipated drop in international prices caused by the high interest rate and recovered supply chains”.
“All in all, December data points to a continuous growth for the fourth quarter with optimism on the upcoming year. This made us comfortably project growth of non-oil GDP to exceed 4 per cent in 2023,” he said.
Non-oil companies maintained a broadly positive view for the coming year, with optimism largely based on strengthening demand and forecasts of increased investment linked to the Vision 2030 initiative, according to the PMI survey.
The PMI readings for the UAE and Egypt are expected to be released on Wednesday.