Saudi’s non-oil activity growth strengthens to over 7-year high

The Saudi Arabia PMI from Riyad Bank pointed to another robust improvement in business conditions across the non-oil economy in November, underscored by a sharp expansion in business activity that was the fastest since August 2015.

New order growth accelerated to a 14-month high, leading to a sharper rise in purchasing activity, but falling backlogs and strong capacity levels meant that job creation remained mild.

At the same time, non-oil businesses saw a pick up in inflationary pressures, as average input costs and prices charged rose to the greatest degree since July.

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 per cent), Output (25 per cent), Employment (20 per cent), Suppliers’ Delivery Times (15 per cent) and Stocks of Purchases (10 per cent). 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 index increased for the second consecutive month in November, rising to 58.5 from 57.2 in October, and remained firmly above the 50.0 mark that separates growth from contraction.

The reading was also the highest seen since September 2021 and above the long-run series average of 56.8. Non-oil companies continued to register a sharp uplift in new business in November, which survey panellists attributed to improving economic conditions, rising client demand and increased investment.

Notably, the rate of sales growth picked up to the sharpest in over a year, as over 41 per cent of surveyed businesses reported an increase from the prior month.

As well as strong domestic conditions, firms saw the quickest increase in new export business since November 2015.

As a result, output levels expanded at the strongest rate for more than seven years, with growth remaining sharp in each of the manufacturing, construction, wholesale & retail and services sectors.

The rise in activity helped firms to complete new orders and reduce backlogs of work for the sixth month running.

Naif Al-Ghaith PhD, Chief Economist at Riyad Bank, said: “The Saudi Economy is continuing its expansion in the non-oil sector in November, business conditions have improved across the board in light of rising demand. Output levels have expanded at the fastest pace in seven years, driving cost pressures higher and resulting in increased prices charged to consumers. Improved business expectations was also observed as a result of the ongoing execution of Vision 2030 initiatives, which provided confidence to the outlook of future output of the non-oil activities.” Rising demand encouraged non-oil businesses to expand their purchasing in November. Input buying rose at the second-fastest rate since August 2015, leading to a robust increase in inventories.

Stock additions were helped by a stronger improvement in supplier performance. On the flip side, employment numbers rose only slightly, with most companies keeping staffing unchanged from the month before.Meanwhile, the latest survey data pointed to an uptick in input cost inflation during November.

Average input prices rose sharply and at the quickest pace since July, amid reports of higher material prices and a greater impact from global inflationary pressures.

Firms also reported a renewed rise in staff costs, after the first decrease for eight months was recorded in October.The faster pace of cost inflation led to a solid and quicker increase in output charges, as firms looked to pass through higher expenses to their customers. Output prices rose in the manufacturing, wholesale & retail and services sectors, but fell in construction. Finally, business expectations regarding the outlook for output ticked higher in November, leading to the most optimistic forecast for the year ahead since January 2021.

Panellists commented that rising new orders and the government’s Vision 2030 initiative gave them confidence that activity will strengthen.

The Riyad Bank Saudi Arabia PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 private sector companies. The panel is stratified by detailed sector and company workforce size, based on contributions to GDP.

The sectors covered by the survey include manufacturing, construction, wholesale, retail and services. Data were first collected August 2009. Survey responses are collected in the second half of each month and indicate the direction of change compared to the previous month.

A diffusion index is calculated for each survey variable. The index is the sum of the percentage of ‘higher’ responses and half the percentage of ‘unchanged’ responses. The indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease.