Saudi Arabia's non-oil business activity hits strongest level in six months

UAE's non-oil private sector economy also expanded while Egypt’s contracted for second straight month amid mounting cost pressures

Tourists at Souk Madinat Jumeirah, in Dubai. The non-oil economy in the UAE has maintained a robust growth momentum this year. Jaime Puebla / The National

Business activity in the non-oil private sectors of the UAE and Saudi Arabia continued to strengthen in October, with the kingdom recording a faster pace of expansion, hitting the strongest level in six months amid continued economic momentum.

The seasonally adjusted Riyad Bank purchasing managers’ index – a benchmark for the health of Saudi Arabia’s non-oil economy – advanced to 56.9 in October, from 56.3 a month earlier, remaining well above the neutral 50 mark that separates growth from contraction.

The headline PMI rose for the third month in a row and signalled another sharp upturn in operating conditions across the non-oil private sector of the Arab world’s largest economy.

The rise in the PMI was mainly driven by a stronger increase in sales volumes at the beginning of the final quarter of the year. Businesses surveyed said higher client demand, a greater uplift in economic conditions and focus on infrastructure development supported new business growth, which reached the highest level since March.

“This growth is part of a steady expansion trend since September 2020, driven by increasing demand and aligning with the goals of Vision 2030,” said Naif Al-Ghaith, chief economist at Riyad Bank. “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.”

The rate of business expansion also accelerated from September, as the survey data continued to signal a broad-based growth in Saudi Arabia’s non-oil economy. Optimism for the future business activity in the kingdom also improved in October compared with the previous month.

Saudi Arabia, Opec’s top oil producer, is pushing to diversify its economy away from oil under Vision 2030. The overarching economic reform agenda aims to accelerate the development of sectors including technology, property, tourism and infrastructure, boosting employment and expanding the non-oil industrial base in the kingdom. Expanding its financial markets and increasing foreign direct investment are also among the central planks of the programme.

Saudi Arabia estimates its economy to expand by 0.8 per cent this year, supported by a 3.7 per cent growth its non-oil sector, according to the latest data from the kingdom’s Finance Ministry. The kingdom’s gross domestic product is projected to grow by 4.6 per cent in 2025, 3.5 per cent in 2026 and 4.7 per cent in 2027.

Non-oil economic growth in the past few years has also been supported by government initiatives, including opening various sectors for foreign investment. The kingdom is developing several giga projects across sectors including property, tourism, entertainment and infrastructure.

UAE PMI improves

The S&P Global PMI for the UAE rose to 54.1 in October, up from 53.8 a month earlier, the best rate of expansion since April this year. The increase was supported by a “marked and faster increase in business activity”.

Business sentiment picked up from September's 18-month low, with companies surveyed expecting growth to continue over the coming 12-month period. Momentum was also supported by input cost inflation dipping to the lowest since April.

But growth of new orders in the second-largest Arab economy softened to its lowest since February 2023, which contributed to weaker job creation and a renewed drop in selling charges.

The slower pace of expansion in the UAE’s non-oil economy follows a “robust growth period in late-2023 and early-2024”, but businesses said the “crowding in the market was eating into sales, and hitting job creation”, said David Owen, senior economist at S&P Global Market Intelligence.

"Firms reduced their output prices for the first time in six months in a bid to try and reverse this slowing sales trend. Positively, this came at the same time as input price pressures softened, likewise to a six-month low,” he added.

The UAE economy, which grew by 3.4 per cent in the first quarter of 2024, is expected to expand by 4 per cent this year on the back of a boost from its non-oil sector, the latest data from the Central Bank of the UAE shows.

The non-oil sector in the Emirates is projected to expand by 5.2 per cent in 2024 and 5.3 per cent in the following year, on strengthening foreign investments across sectors. Government measures such as the 100 per cent ownership of foreign businesses as well the tax reforms instituted in the country are also supporting growth, the CBUAE said.

Non-oil foreign trade in the first six months of this year, jumped to record Dh1.4 trillion ($381.5 billion), driven by the recent flurry of economic and trade deals the country has signed with partners across continents. With continued economic and trade momentum providing tailwinds, “there are some reasons to suggest this [PMI index rise] could hold up, not least that firms are still seeing a long pipeline of work backlogs and ongoing contracts", Mr Owen said. “This may ensure that the non-oil economy can continue to grow even if sales momentum slows further, though it may be more difficult to keep up this pace."

Contraction in Egypt

Egyptian companies in the non-oil private sector continued to see a decline in business activity as the final quarter of 2024 began. Strong cost pressures led to another increase in overall selling prices and a drop in new order volumes dented sentiment.

The S&P Global Egypt PMI was at 49, remaining below the neutral level 50 for the second month in a row, although it improved fractionally from 48.8 recorded in September.

This headline reading “signals a deterioration in overall conditions” driven by a sharp fall in business activity and new orders last month. Businesses surveyed also referred to a sales decline due to weak market conditions, as well as further pressure from rising prices. "That said, with the PMI at 49 in October, Egypt's non-oil economy is not too far from growing again,” Mr Owen said.