Saudi posts sustained purchasing growth and rising business activity

Non-oil private sector companies reported a sharp uplift in their employment levels in July, in response to strong domestic demand conditions and rising business activity.

The Riyad Bank Saudi Arabia PMI also signalled sustained purchasing growth and shorter delivery times, alongside a modest slowdown in input cost inflation. However, sales growth and business confidence eased in July.

Moreover, the rate of business activity expansion eased to its lowest since January 2022.

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 posted 56.3 in July, down from 57.2 in June, but above the 50.0 mark that separates growth from contraction in the non-oil private sector. The latest reading signalled a sharp improvement in business conditions since the previous month, driven by growth of output, new orders, stocks of purchases and employment.

Non-oil private sector firms reported a strong expansion in output in July.

Work on existing projects and incoming new orders helped to sustain growth, according to qualitative survey reports.

That said, the expansion eased to the least marked pace in three- and-a-half years.

Order book levels also grew, which panellists typically linked to favourable domestic demand conditions and increased efforts by sales teams to fulfil orders. That said, there were some mentions of higher competition and lower customer footfall acting to dampen growth.

Difficulties gaining new foreign clients were also highlighted by companies, leading to a decrease in new export orders for the first time in nine months.

Naif Al-Ghaith PhD, Chief Economist at Riyad Bank, said: “Saudi Arabia’s non-oil economy remained on a solid growth track in July, supported by higher output, new business, and continued job creation.

Although the headline PMI edged down to 56.3 from 57.2 in June, the reading still pointed to a healthy level of activity across the private sector. Firms continued to benefit from ongoing project work, resilient domestic demand, and focused marketing efforts, even as some indicators showed signs of cooling compared to earlier in the year.

“The slight dip in the headline index was mainly driven by a slowdown in new order growth. Businesses continued to see improved demand, but competitive pressures and more cautious client spending weighed on the pace of expansion.

External demand was also softer, while purchasing activity rose at a slower pace. On the labour front, firms continued to expand their workforce to support rising activity, with July marking another solid month of hiring as companies worked to keep operations running smoothly.

“Looking ahead, business confidence remained positive, though slightly below June’s recent peak. Firms expect activity to pick up over the coming year, supported by steady demand, strong pipelines, and ongoing investment tied to Vision 2030. Employment conditions are expected to stay supportive, helping firms manage future workloads.

However, input cost pressures persisted. Wages and purchasing prices continued to rise, prompting firms to raise selling prices, particularly in services, construction, and manufacturing, while wholesale and retail price adjustments remained more modest.” Firms responded to higher activity and new orders by recruiting staff in July, with the latest survey indicating another historically steep rise in employment, after June’s survey signalled the fastest uplift in over 14 years. Increased hiring was partly driven by an uptick in backlogs of work, as some businesses found that existing contract work and constrained capacity held up the completion of new orders.

Sizeable inventory growth was also recorded in July, driven by robust gains among manufacturers and wholesale and retail firms. However, new input purchases rose at a much slower pace compared to the previous month. Although delivery times shortened on balance, the rate of improvement eased sharply due to some mentions of customs delays.

Input price pressures across the Saudi Arabian non-oil sector were strong during July, although the rate of inflation slowed slightly from the second-quarter average. This was despite another steep increase in salary expenses, underlined by efforts to retain workers and offer bonuses. Rising input costs resulted in a solid markup in prices charged for the second month running.

 Agencies