Saudi Arabia’s non-oil business growth continues as PMI rises to 56.3

RIYADH: Saudi Arabia’s non-oil private sector business conditions strengthened in September, driven by improved sales momentum and rising new orders, according to an economic tracker. 

The Riyad Bank Saudi Arabia PMI survey, compiled by S&P Global, showed the Kingdom’s Purchasing Managers’ Index reached 56.3 in September, up from 54.8 in August. 

S&P Global noted that any PMI reading above 50 indicates growth in the non-oil sector, while readings below 50 signal contraction. 

Supporting non-oil sector growth is a key goal of Saudi Arabia’s Vision 2030 initiative, which aims to diversify the economy and reduce dependence on oil revenue. 

“The rise in Saudi Arabia’s PMI to 56.3 shows the highest level in four months, highlighting a notable acceleration in non-oil private sector growth. This uptick was primarily driven by increased output and new orders, reflecting the sector’s expanding activity,” said Naif Al-Ghaith, chief economist at Riyad Bank.  

He added: “Businesses are responding to stronger domestic demand, which plays a critical role in reducing Saudi Arabia’s dependence on oil revenues.”  

Al-Ghaith also emphasized the significance of non-oil sector growth, given current crude production cuts and declining global oil prices. 

To stabilize the market, Saudi Arabia reduced its oil output by 500,000 barrels per day in April 2023, with the cut extended until December 2024. 

“As oil revenues come under pressure, the robust performance of the non-oil private sector serves as a buffer, helping to mitigate the potential impact on the country’s economic health. The diversification of revenue streams is crucial for maintaining growth amid fluctuating oil markets,” said Al-Ghaith.  

The report also indicated that improved business conditions supported employment growth, though companies struggled to find skilled workers in September. 

Despite strengthening demand, firms expressed concerns over competitive pressures, which dampened future activity expectations.  

S&P Global noted that higher competition led to a reduction in selling prices for the third consecutive month, despite rising business costs. 

“Rising output levels not only enhance the competitiveness of Saudi businesses but also drive forward developments aimed at expanding private sector participation in the economy. This shift provides a more stable foundation for long-term growth, making the economy less vulnerable to oil price volatility,” said Al-Ghaith.  

According to the report, growth was robust and widespread across monitored segments of the non-oil economy, with respondents citing higher demand and new project approvals. 

“By expanding output across key non-oil industries, Saudi Arabia is better positioned to navigate the challenges of oil market fluctuations, ensuring a more sustainable and diversified economic future,” concluded Al-Ghaith.