Survey: Non-oil sector activity in Saudi Arabia is still in a strong growth mode

A survey showed today, Wednesday, that non-oil sector activity in Saudi Arabia grew in June at the slowest pace in two and a half years, with new orders continuing to decline, but companies increased their production to support sales and projects despite additional evidence of declining demand expectations, as the growth of new orders decreased. to its weakest level in nearly two and a half years, yet it remains in strong growth mode.

Standard & Poor’s Global said in a report that the Riyad Bank Purchasing Managers’ Index, adjusted for seasonal factors, fell to 55 points last month, down from 56.4 points in May, which is the lowest reading recorded since January 2022, although it is well above the 50-point threshold level. Between growth and contraction.

The report stated that non-oil producing companies in the Kingdom recorded the slowest increase in purchases of production inputs in nearly 3 years, as they look to ease recent increases in inventory, at a time when job growth also declined compared to last month.

At the same time, Standard & Poor’s said there were other reports that offering customer discounts affected overall selling prices and countered efforts to pass on the strong increase in input prices to customers.

While some non-oil producing companies reported increased demand, attracting new customers, and spending on business development, others indicated declining market conditions. Overall new order rates benefited in part from the strong increase in export sales, which was the fastest since the beginning of the year.

Despite the continued decline in new orders growth, non-oil companies continued to record a significant increase in activity, with June data indicating increased growth. Many Study Group members indicated that the volume of existing orders was sufficient to support expansion of production, resulting in a reduction in the backlog.

As production requirements increased, non-oil companies also reported that their employee numbers continued to increase, but at a modest pace and lower than last month, as companies placed more stringent restrictions on operating costs due to wage pressures.

On the price front, sales prices increased marginally in June, as reductions continued to offset the need to pass on increased costs to customers, in light of strong competition. The inflation rate did not rise significantly despite the rise in prices of aggregate inputs at their fastest pace in four months. Many pointed to wage, material and technology costs as factors behind the price increases.

Production expectations for the next 12 months also rose in June, but remained low compared to historical standards. Many participating companies cited improving market conditions as a reason for optimism.

The report quoted Nayef Al-Ghaith, senior economist at Riyad Bank, as saying that new orders in the Purchasing Managers’ Index recorded a decrease compared to the previous month, which indicates a slight decline in demand growth within non-oil-producing sectors.

Al Ghaith added that despite this slowdown, growth in non-oil producing sectors was supported by a strong increase in production levels. Staff numbers also increased, while supplier delivery times continued to improve.

He continued by saying, “Looking at the second quarter as a whole, the growth numbers in the second quarter still indicate positive expectations for the non-oil GDP in Saudi Arabia, with growth expectations exceeding three percent, and the general performance of the non-oil sectors throughout the quarter continues to drive economic growth and efforts.” Diversify the country’s economy. “Rising production levels, stable supply chains and a moderate pace of job creation also point to a resilient and expanding non-oil economy.”