Saudi Arabia business activity growth shows further resilience

The Riyad Bank Saudi Arabia PMI pointed to another strong improvement in business activity across the non-oil private sector in June, as companies ramped up their output levels to support sales and projects.

The uplift in activity came despite further evidence of softening demand prospects, as growth of new order intakes dropped to its weakest level in nearly two-and-a-half years.

Similarly, non-oil businesses reported the slowest rise in input purchases for nearly three years as they looked to temper recent surges in stockpiles, while job creation growth also softened from May. Saudi Arabia’s output rises substantially in the month of June and the employment and stock levels continue to rise in the country.

At the same time, there were further reports that the offering of discounts to customers had weighed on overall selling prices and opposing efforts to pass on a solid increase in input prices.

The headline figure is the seasonally adjusted Riyad Bank Saudi Arabia Purchasing Managers’ Index (PMI).

The PMI is a weighted average of the following five indices: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stocks of Purchases (10%). For the PMI calculation the Suppliers’ Delivery Times Index is inverted so that it moves in a comparable direction to the other indices.

The headline PMI fell for the second month running in June, dropping to 55.0 from 56.4 in May. Although the reading was well above the 50.0 neutral mark, consistent with a robust improvement in business conditions, it was the lowest recorded since January 2022.

The fall in the headline index was largely due to a weaker upturn in new order volumes, with the rate of growth slowing for the third successive month to its least marked in nearly two-and-a-half years.

While some non-oil companies reported stronger demand, new client intakes and business development spending, others signalled a softening of market conditions.

Overall new order books were partly helped by a solid increase in export sales which was also the fastest recorded in 2024 so far.

Naif Al-Ghaith PhD, Chief Economist at Riyad Bank, said: “The Purchasing Managers’ Index (PMI) for the non-oil economy recorded at 55.0 in June, marking the slowest pace of expansion since January 2022.

The new orders component of the PMI fell compared to the previous month, suggesting a slight moderation in demand growth within non-oil sectors.

Despite this slowdown, the growth in non-oil sectors was supported by a strong increase in output levels. Employment numbers also rose, while suppliers’ delivery times continued to improve.

“Looking at the second quarter as a whole, the growth figures for Q2 still indicate a positive outlook for non-oil GDP in Saudi Arabia, with expectations of growth exceeding 3 per cent. The overall performance of non-oil sectors throughout the quarter continues to drive economic growth and diversification efforts in the country.

The high output levels, stable supply chains, and moderate job creation point towards a resilient and expanding non-oil economy.”

Despite the sustained easing of new order growth, non-oil businesses continued to report a considerable increase in activity, with June data pointing to a strengthening of growth.

Survey panellists often indicated that existing order books were sufficient to advocate for an expansion in output, which subsequently led to a reduction in backlog volumes.

With output requirements growing, non-oil firms also reported a sustained uplift in their staffing numbers.

However, amid some evidence of companies placing tighter constraints on operational costs due to wage pressures, the rise in staffing was only modest and milder than in May.

Similarly, after a period of unprecedented inventory growth in recent months, businesses showed a greater desire to temper their purchasing activity.

Although input purchases continued to rise, the rate of expansion was the weakest recorded since September 2021.

The slowdown resulted in a decelerated, but still sharp increase in inventory volumes, particularly as vendors continued to make quicker deliveries.

On the price front, the latest survey data signalled another marginal rise in prices charged in June, as the need to pass on cost increases continued to be offset by discounting efforts amid strong competition.

The suppressed rate of charge inflation occurred despite overall input prices rising at their fastest pace in four months.

Wages, materials and technology costs were often cited as drivers of price pressures.Output expectations for the year ahead ticked higher in June, but remained low compared to historical standards.

Agencies