Saudi non-oil sector growth: Business activity surges to a 16-month high

Saudi Arabia’s non-oil private sector expanded at an impressive pace in November, with the Riyad Bank Saudi Arabia Purchasing Managers’ Index (PMI) climbing to 59.0 from 56.9 in October. This marks the fourth consecutive monthly rise, reflecting the Kingdom’s sustained progress in economic diversification.

Business activity accelerated at its sharpest rate since July 2023, propelled by increased customer demand, higher order volumes, and effective marketing campaigns. Firms reported significant growth in new orders, including a strong recovery in foreign sales, reversing a modest dip in the previous period.

Employment growth was another standout, with companies expanding their workforce at the second-fastest rate in over a decade to manage rising workloads. “Employment growth signals the non-oil sector’s expanding capacity to absorb labour, supporting national employment objectives,” remarked Naif Al-Ghaith, chief economist at Riyad Bank.

Al-Ghaith also highlighted the broader implications of this surge. “The non-oil sector’s resilience underscores Saudi Arabia’s growing ability to generate economic activity independent of oil price fluctuations,” he said, pointing to the success of government initiatives under Vision 2030.

The PMI, which aggregates data on new orders, output, employment, supplier delivery times, and stock levels, paints a comprehensive picture of the sector’s health. All five components contributed to November’s strong performance, reflecting robust operating conditions across the board.

Firms ramped up purchasing activity at the fastest rate since March, driven by anticipation of continued demand growth. This led to an increase in inventories but also strained supply chains, resulting in the slowest vendor performance improvements in over a year.

Inflationary Pressures Emerge
Despite the optimism, the report also flagged rising inflationary pressures. Input costs soared at the sharpest rate in over four years, fuelled by higher wages, geopolitical tensions, and increased transport expenses. Wage inflation reached a ten-year high, prompting firms to raise selling prices at the fastest pace since January to maintain profitability.

“These inflationary pressures indicate the challenges businesses face in balancing growth with cost management,” Al-Ghaith explained. However, he noted that increased purchasing activity and inventory expansion show confidence in sustained demand.

This performance aligns with broader economic trends, including increased foreign investment and enhanced trade partnerships, which are central to Saudi Arabia’s economic transformation.

Vision 2030 Momentum
The robust PMI reading underscores the Kingdom’s economic resilience amid global uncertainties. Firms remain optimistic about future growth, buoyed by the government’s ongoing efforts to diversify the economy.

“Maintaining this momentum will be crucial to achieving Vision 2030 goals and ensuring long-term economic sustainability,” Al-Ghaith concluded, emphasising the importance of continued investment in non-oil sectors.

As Saudi Arabia’s non-oil sector continues to grow, the PMI’s rise serves as a testament to the country’s successful transition towards a more diversified, sustainable economy.