The Riyad Bank Saudi Arabia Purchasing Managers’ Index (PMI) continued to signal a rapid expansion in the non-oil private sector in November, despite evidence that price pressures accelerated to their highest in nearly one-and-a-half years.

Reports of increased raw material prices fuelled a renewed uplift in firms’ selling charges, but demand conditions remained strong and new business inflows rose at the sharpest rate since June as firms cited new customers and greater investment spending.

Output levels also expanded sharply in November in response to the marked upturn in sales, while the rate of job creation was solid but weakened from October’s nine-year high.

Robust demand expectations meant that the outlook for future activity in the non-oil sector was the strongest in five months.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 PMI dropped from 58.4 in October to 57.5 in November, but stayed well above the 50.0 neutral threshold to signal a marked improvement in business conditions across the Saudi Arabian non-oil private sector economy.

The fall in the headline index was due to moderations in the rate of staff and inventory growth, as well as a sharp reduction in delivery times. However, the two largest contributors to the headline index saw upticks in November, with the New Orders Index posting its highest reading in five months.

New order intakes continued to rise considerably as companies highlighted improvements in market conditions, customer numbers and investment spending.

The uplift came despite weakness in foreign demand, as the latest data showed new export orders declining for the third time in four months.

Naif Al-Ghaith PhD, Chief Economist at Riyad Bank, said: “Riyad Bank PMI continues to show an expansion in the non-oil activities driven by a five-month high in new order growth. Firms anticipate a continuous increase in output, fuelled by a robust inflow of new projects.”

Manufacturers, in particular, are highly optimistic about the next 12 months, as they anticipate a favourable business climate.

Additionally, the wholesale and retail sectors also show promising signs, aligning with the overall positive sentiment. This bodes well for Saudi Arabia’s economic growth and suggests a favourable environment for businesses in various industries. “Despite the expansion in new orders and output, the new export figures have remained relatively low to be in line with the non-oil exports figures posted by GASTA. This weak performance in exports can be primarily attributed to the petrochemical sectors as this sector represents more than 29 per cent of non-oil exports.

“Another factor affecting the PMI is the response of prices to input costs. Over the past few months, input prices have been increasing, and this trend has started to impact the price of final goods and services. However, due to competitive pressures, the impact on overall prices has been somewhat subdued. This month, output prices recorded an increase, yet one that was slower than the increase in input prices.

“In summary, the Saudi PMI has shown positive signs of expansion, driven by strong sales, increased orders, and effective marketing strategies. However, the export numbers, particularly in the petrochemical sectors, have remained relatively low compared to the previous year. Additionally, while input costs have been rising, competitive pressures have limited the impact on overall prices.”

In response, non-oil companies reported a marked increase in business activity during November, one that was slightly faster than in October.

The rapid expansion led to a continuation of the recent run of strong purchasing growth, with the latest upturn among the fastest in over eight years. Subsequently, input stocks rose again, albeit at a softer rate.

Meanwhile, the latest survey data indicated a further pick-up in cost inflation across the non-oil economy. Overall input costs rose at their quickest pace since June 2022, led by increased purchase prices, especially in the construction sector.

Wage inflation moderated but also remained above average, as some firms cited efforts to retain experienced staff and compensate workers for greater living costs.

Higher salaries came amid another solid increase in employment across the non-oil sector, although the rate of growth eased from October’s nine-year record.Increased cost burdens led non-oil companies to lift their selling charges for the first time in three months in November.