Non-oil business activity in Arab world's largest economies remained robust in March

New orders and output rose sharply last month amid continued growth momentum in Saudi Arabia and the UAE

The Dubai skyline. Strong demand remains a key feature of growth in the latest upturn in the Arab world’s second-largest economy. Antonie Robertson / The National

Business activity in the non-oil private sector economies of Saudi Arabia and the UAE continued to expand in March, albeit at a slower pace, driven by a sharp rise in new orders and output growth amid continued economic momentum in the Arab world's two largest economies.

The seasonally adjusted Riyad Bank purchasing managers’ index ­– a crucial gauge of the kingdom’s non-oil economy – slipped to 57 last month, down from 57.2 in February. It, however, stayed well above the neutral 50 mark that separates growth from contraction.

Output grew significantly in March, hitting the strongest level seen in the past six months, with most non-oil companies in the kingdom linking higher activity to robust order intakes and strong demand conditions.

New orders placed at non-oil companies also rose sharply in the latest survey period, with the expansion rate accelerating for the second month running. Three times as many firms reported a rise in new business volumes than those registering a fall.

Demand from foreign customers also improved for companies in the kingdom, with March data marking the first sustained month-on-month growth since the middle of last year.

“The surge in orders and customer acquisition not only bolstered current operations but also laid the foundation for continued expansion and potential business growth in the foreseeable future,” Naif Al Ghaith, chief economist at Riyad Bank, said.

“Overall, the latest Saudi PMI data underscores a robust and dynamic non-oil economy, driven by a surge in demand and heightened business activity. The strong performance witnessed across various sectors, coupled with the notable increase in order books and new customers, signifies a resilient market.”

The latest data also indicated a rise in hiring activity to support increased workloads. Although employment rose at a moderate pace, it was still quicker than the survey average for the second consecutive month.

Non-oil companies also expect improved demand conditions to continue supporting business activity in the future. Business optimism for the coming 12 months was the strongest registered since November last year, depicting confidence in the growth prospects of the kingdom's non-oil economy.

Saudi Arabia, the world's biggest oil exporter, is transforming its economy under its Vision 2030 diversification agenda.

The kingdom has been implementing initiatives and policy reforms that are aimed at cutting its dependence on oil revenue, broaden its non-oil economic base, further boost domestic industries, and support the development of sectors including technology, property, tourism and infrastructure.

The kingdom aims to generate employment and help its non-oil economy to grow.

Saudi economy, contracted by 0.8 per cent annually last year, mainly due to a sharp decline in the oil sector, although the non-oil sector expanded by 4.4 per cent during the period.

The kingdom’s gross domestic product at current prices exceeded 4 trillion Saudi riyals ($1.06 trillion), according to the latest government data.

Saudi Arabia's economy is projected to grow by 2.7 per cent this year and 5.5 per cent in 2025, after contracting by about 1.1 per cent last year due to cuts in oil output, according to the latest International Monetary Fund estimates.

Meanwhile, the headline S&P Global purchasing managers' index for the UAE dipped to 56.9 in March from its almost five-year high of 57.1 level achieved in February.

Strong demand remained a key feature of the latest upturn in the Arab world’s second-largest economy as businesses surveyed reported another sharp uplift in new order volumes in March.

“The overall picture for the UAE non-oil private sector remained rosy at the end of the first quarter,” David Owen, senior economist at S&P Global Market Intelligence, said.

The Riyadh skyline. Demand from foreign customers also improved for companies in the kingdom. Reuters

“The latest PMI reading … signalled a robust upturn in business conditions, with order book inflows and activity levels still growing sharply.”

The UAE non-oil businesses also raised their output levels “to a considerable degree” in March, with about a third of respondents reporting activity growth over the latest survey period.

The UAE economy is expected to grow by 5 per cent this year, driven by a robust expansion in the non-oil sector and an increase in foreign direct investment, Minister of Economy Abdulla bin Touq said in March.

The non-oil economy currently accounts for 73 per cent of the UAE’s GDP a “historic first for the country”, he said.

The UAE Central Bank, however, projects the country's economy to expand 4.2 per cent, a downgrade from the its previous 5.7 per cent estimate.

"The revision is due to a slower recovery in oil production in light of the Opec+ agreement in November 2023, and a robust yet declining growth in the non-oil sector," the banking regulator said in its latest quarterly report.

The Central Bank expects GDP growth to accelerate to 5.2 per cent in 2025, as non-oil economic growth trends are expected to continue and oil production to remain at the levels of end-2024.

The latest survey indicated a sharp rise in backlogs of work, hitting the highest level since June 2018. Disruption to input freight arrivals due to the Red Sea shipping crisis were cited among the reasons that are affecting the business capacity.

“Full attention should however be given to the survey's backlogs of work index, which posted its joint-highest reading since the survey began in 2009 (matched only in June 2018),” Mr Owen said.

However, despite business capacity pressures, optimism towards future business activity rose to the second-strongest level in four years.

Meanwhile, Egypt's non-oil private sector economy continued to decline at the end of the first quarter, with business activity and new order volumes falling at marked rates.

Businesses surveyed once again indicated that volatile currency markets were hurting customer demand and driving up prices.

The headline S&P Global purchasing managers’ index for Egypt rose slightly to 47.6 in March from 47.1 in February indicating a “softer, but still-solid deterioration in the health of the sector”.