Saudi Arabia's non-oil sector reported a decline in business activity in March, the first time in five-and-a-half years, amid disruption from the regional war.
The seasonally adjusted Riyad Bank Saudi Arabia Purchasing Managers' Index dropped to 48.8 in March from 56.1 in February, falling below the 50 neutral mark. A reading below 50 indicates a decline in overall business conditions.
A steep fall in new export orders and weaker domestic customer confidence dampened sales and led businesses to reduce their output, the report said.
The 7.3-point monthly fall in the index was the second-largest since the survey began in 2009, behind that seen in March 2020.
The latest PMI reading reflects a "temporary adjustment following a strong expansion phase", said Naif Al-Ghaith, chief economist at Riyad Bank.
"While this marks the first dip below the expansion threshold in over five-and-a half years, it largely captures short-term uncertainty linked to heightened geopolitical tensions in the region."
Saudi Arabia, along with the other Gulf countries, has been facing constant attacks by Iran, which claims it is retaliating for strikes by Israeli and US forces that began on February 28. The effective closure of the Strait of Hormuz has also hit Gulf hydrocarbon exports.
A report last week by the International Monetary Fund warned of slower growth globally due to the war, with the length of the conflict set to determine the scale of impact.
In the kingdom, business activity and new work were affected in March, with both seasonally adjusted indices falling below the no-change level for the first time since August 2020, the PMI found.
Survey panellists reported a halting of new projects and clients’ spending decisions as they waited to see the outcome of the conflict.
Supply chains were also affected as non-oil firms cited freight delays and rising transport costs. Delivery times worsened to the greatest degree since June 2020.
Export orders were particularly affected, with the latest data signalling the quickest decline in almost six years, the report found.
Despite a fall in orders, operational constraints caused backlogs of work across the non-oil sector to rise at the fastest rate since July 2018.
Job creation continued, but the rate of expansion slowed since February. Some firms increased their staff to offset supply pressures and meet local workforce targets, the report said.
Meanwhile, overall input costs rose at the softest pace in a year, due to a slowdown in wage inflation from a record high in February.
Some firms mentioned that an increase in fuel prices and freight surcharges had elevated purchasing costs and contributed to higher selling charges.
“Underlying fundamentals remain supportive," said Mr Al-Ghaith. "Employment continued to expand, signalling business confidence in future demand. Expectations across firms remain positive, underpinned by continuing government spending initiatives and Vision 2030 transformation programmes.
"Overall, the data points to a slowdown in March rather than a structural slowdown, with medium-term growth prospects firmly intact.”
Egypt's PMI continues to drop
Egypt's non-oil sector activity was also affected by the war, with the PMI in March falling to its lowest point in almost two years.
The seasonally adjusted S&P Global Egypt Purchasing Managers' Index fell for a fourth successive month in March, declining to 48.0 last month from 48.9 in February.
While the contraction was limited and the PMI was broadly in line with the survey's long-run average (48.2), the downturn was the strongest recorded since April 2024, the report said.
"Input prices increased sharply in March, with panellists citing both commodity price increases linked to the war and a weaker pound against the US dollar," said David Owen, senior economist at S&P Global Market Intelligence.
"As the US dollar strengthens amid a flight to safety, and energy prices remain elevated, Egyptian companies are clearly feeling the impact on their balance sheets."
