Saudi Arabia’s non-oil private sector PMI is 55, leading in the Gulf region – S&P Global

RIYADH: The Saudi non-oil private sector posted solid growth in June, driven by increased demand, higher production levels and job growth, a report said.

The latest S&P Global Purchasing Managers’ Index showed that the Riyad Bank Saudi Arabia PMI stabilized at 55 from 56.4 in May, marking the lowest reading since January 2022.

Despite a slowdown in new orders, which saw its slowest growth in almost two and a half years, non-oil companies posted strong production growth, helping the Kingdom lead the region in terms of the strongest expansion rates.

Businesses increased production levels to support ongoing sales and projects, reflecting the positive business environment.

Naif Al-Ghaith, chief economist at Riyad Bank, said: “The non-oil PMI came in at 55.0 in June, marking the slowest pace of expansion since January 2022. The new orders component fell from the previous month, suggesting a slight slowdown in demand growth.”

He added: “However, growth in non-oil sectors was supported by strong growth in production levels. Employment also increased while supplier delivery times continued to improve.”

Second-quarter growth data points to a positive outlook for Saudi non-oil gross domestic product, with growth expected to exceed 3 percent.

High levels of production, stable supply chains and moderate levels of job creation point to a resilient and growing economy that is not dependent on oil, contributing to the country’s economic diversification efforts.

Saudi Arabia is actively diversifying its economy under Vision 2030, attracting global investment in technology and tourism through initiatives such as NEOM.

The Kingdom has also developed its tourism sector with projects such as the Red Sea and Al-Ula, while cultural events and industrial programmes such as the National Industrial and Logistics Development Programme are driving economic growth.

Simultaneous financial reforms and investments in renewable energy sources are reducing dependence on oil. These efforts are complemented by measures to support SMEs and improve education, prepare the workforce for new sectors of the economy and underscore Saudi Arabia’s commitment to transformation.

UAE

The UAE’s non-oil private sector continued to expand in June, although the pace of expansion slowed. The S&P Global UAE PMI fell to 54.6 from 55.3 in May, a 16-month low.

The decline was mainly due to continuing competitive pressure, weaker job creation and a slowdown in production growth.

The sector has faced challenges from rising input prices, leading to the fastest increase in average prices since April 2018.

Despite these challenges, companies reported a strong increase in new work, with the increase in new orders the strongest since March. Export volumes also saw a significant increase, reaching their highest levels since October 2023.

David Owen, senior economist at S&P Global Market Intelligence, noted: “The UAE PMI highlights a slowdown in the non-oil sector’s growth trend for 2024 as a whole. However, companies continue to enjoy strong customer demand and solid sales channels, supporting production expectations and driving purchasing activity.”

Owen added: “On the other hand, input price pressures are at their strongest in almost two years, forcing companies to raise their output prices for the second month in a row.”

Continued high demand and sales indicate market resilience despite external pressures and challenges.

In recent months, the UAE has initiated several projects aimed at strengthening its non-oil sector. For example, the Dubai Industrial Strategy 2030 aims to increase the total production and value added of the manufacturing sector and increase the depth of knowledge and innovation, making Dubai the preferred manufacturing platform for global companies.

Additionally, Abu Dhabi’s Ghadan 21 programme continues to invest in economic infrastructure projects and initiatives that support and transform the emirate’s economy, knowledge ecosystem and communities.

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Qatar’s excluding energy private sector grew strongly in June, the fastest expansion in almost two years, according to the latest data from the Qatar Financial Centre’s Purchasing Managers’ Index survey, compiled by S&P Global.

The PMI, which rose for the fifth time this year, hit a 23-month high on increased economic activity and a rise in new orders.

The PMI reached 55.9 in June, up from 53.6 in May, indicating the biggest improvement in private sector conditions outside the energy sector since July 2022.

Production grew at the fastest rate in a year and a half, with the largest increases recorded in the manufacturing and construction sectors.

The number of new orders increased at the fastest rate in 13 months, supported by an increased number of customers and effective promotional activities.

Employment growth continued for the sixteenth consecutive month, reflecting the company’s ongoing expansion and demand for highly skilled staff.

Despite rising demand, inflationary pressures remained subdued, with only modest increases in input prices and reductions in the prices charged for goods and services since May.

Companies were optimistic about the outlook for the next 12 months, attributing the positive forecasts to the opening of recent branches, new customer acquisitions and marketing campaigns.

Qatar has developed its non-oil sector through initiatives such as investing in infrastructure and industrial development, promoting tourism and hospitality, and creating duty-free zones, all aimed at diversifying the economy away from its dependence on oil and gas revenues.

Kuwait

Kuwait’s non-oil private sector posted solid growth in June, with the S&P Global Kuwait PMI coming in at 51.6, down slightly from 52.4 in May.

The indicator remained above the neutral level of 50 for the 17th consecutive month, indicating further improvement in business conditions.

Employment in the sector rose at its fastest pace on record, driven by solid new orders and increased production. Despite sharp increases in input costs, the inflation rate fell for a third straight month, allowing companies to rein in price increases for customers.

Kuwaiti businesses grappled with input cost inflation, but the pace of input price growth slowed from peaks seen earlier in the year.

Andrew Harker, chief economic officer at S&P Global Market Intelligence, said: “A steady flow of new orders encouraged companies to increase hiring in June at the fastest pace on record.”

Businesses were able to manage these costs better, which resulted in moderate price increases for their goods and services.

“There were more signs of easing input cost inflation, allowing firms to continue to rein in price increases for customers in order to secure new work. One of the main drivers of the spending increase was advertising, which has often been a central element of growth in the non-oil private sector in recent months,” Harker added.

Kuwait is actively working to diversify its economy through initiatives such as the Kuwait National Development Plan, which aims to transform Kuwait into a financial and trade center on the regional and international stage. Recent projects include “Madinat al-Hareer” or Silk City, and the expansion of Mubarak Al Kabeer Port.

Global overview

In June, the U.S. non-manufacturing PMI came in at 51.6, indicating modest growth. China’s Caixin Services PMI came in at 51.2, down from 54 in May.

The HCOB Germany Services PMI Business Activity Index, which asks about changes in business activity compared with the previous month, reached 53.1 in June.

This is the fourth consecutive month above the 50-point threshold with no changes, indicating a solid pace of expansion.

However, this is a slight decline from May’s high of 54.2, marking the index’s first decline since January.

Meanwhile, the PMI for the services sector in Japan was 49.4 in June, compared to 53.8 in May.

These comparisons underline the relatively good performance of the Gulf region, and in particular the leading position of Saudi Arabia with a PMI of 55.

Despite some headwinds, non-oil sectors in these Gulf countries continue to show resilience and solid growth, boding well for their economic diversification efforts.

The Purchasing Managers’ Index, produced globally by S&P Global and certain local trade associations, is a survey-based economic indicator designed to provide up-to-date information on business conditions.

It includes individual indicators such as a company’s production, new orders, employment costs and selling prices, as well as exports, purchasing activity, supplier performance, back orders and inventories of both inputs and finished goods.

By asking respondents to report changes from the previous month and their attitudes about future production, the PMI forecasts changing economic trends and can serve as an alternative indicator to official data, which may be delayed or have quality issues.

Initially focused on manufacturing, its reach now also includes the services, construction and retail sectors.