Non-oil private sector growth in Saudi Arabia remains steady, with PMI at 56.4

RIYADH: Saudi Arabia’s non-oil private sector growth held steady in May, with the kingdom’s purchasing managers’ index reaching 56.4, down slightly from 57 in April, official data showed.

Business activity in Saudi Arabia increased at a significant pace in May, continuing a period of strong output growth across the non-oil economy, according to S&P Global’s Riyad Bank Saudi Arabia PMI report.

In March, the PMI index was 57, in February – 57.2, and in January – 55.4.

S&P Global noted that any PMI reading above 50 indicates growth in the non-oil sector, while readings below 50 signal decline.

Naif Al-Ghaith, chief economist at Riyad Bank, said: “The PMI for Saudi Arabia’s non-oil economy is showing a positive trend, driven by rising demand, as evidenced by the increase in new orders. This growth required an increase in unemployment to meet the growing demand for goods and services.

He added: “However, the increase in demand has also led to price pressures affecting input prices and staff costs, although price increases for finished goods are observed at a slower pace. This balancing act reflects the challenges companies face in managing costs as they try to capitalize on a growing market.

The report highlighted that business activity and new order growth in the Kingdom remained strong in May, despite subsequent reports of strong demand, particularly in domestic markets.

Inventories continued to grow strongly in May after hitting an all-time high in April as companies sought to prepare for strong future sales.

“Moreover, rising inventory levels and prices have prompted companies to adjust their purchasing behavior to align with their sales strategies. This cautious approach demonstrates a strategic response to changing market dynamics and the need to maintain a sustainable business model,” Al-Ghaith added.

The PMI survey found that companies reported increasing activity due to strong demand conditions and efforts to fulfill pending workloads.

The report added that activity growth was broad-based across all sectors monitored, with construction seeing the sharpest growth.

Moreover, non-oil private sector companies increased employment levels in May, mainly driven by heavier workloads, offsetting the first decline in more than two years in April.

Al-Ghaith further noted that Saudi Arabia’s efforts to diversify the Kingdom’s economy will enhance gross domestic product growth beyond oil.

“The latest preliminary estimates of first-quarter non-oil GDP growth and the forecast for the second quarter suggest a continuation of this upward trajectory. Non-oil GDP growth is expected to exceed 3 percent, driven by continued efforts to diversify the economy in line with Vision 2030,” Al-Ghaith said.

He added: “This strategic vision underscores the government’s commitment to reducing its dependence on oil revenues and supporting a more diversified and resilient economy, paving the way for sustainable growth and development across sectors.”

Kuwait PMI up

In another report, S&P Global revealed that Kuwait’s PMI rose to 52.4 in May from 51.5 in April, driven by a sharp and accelerated increase in new business.

The ratings firm noted that Kuwait recorded its strongest output growth in four years.

“The strategy implemented by a number of Kuwait’s non-oil private sector companies continued to pay off in May, with a focus on advertising and competitive pricing leading to rapid production growth and new orders,” said Andrew Harker, director of economics at S&P Global Market Intelligence.

The report emphasized that the increase in employment levels in May was only marginal, which resulted in a record accumulation of backlogs of work.

“The challenge for companies today is keeping up with demand. While employment returned to growth in May, the pace of job creation was only marginal and insufficient to prevent the strongest growth in outstanding activity in the history of the survey,” Harker said.

He added: “If companies are to be able to meet customer demands on time, their efficiency will need to be improved in the future.”

The economic survey further showed that Kuwait witnessed a surge in new orders. At the same time, new export orders also grew at a faster pace in the middle of the second quarter.

On the other hand, in May the inflation rate dropped to the weakest since the beginning of the year.

Egypt’s PMI index reached its highest level in 33 months

Meanwhile, Egypt’s PMI increased significantly in May to 49.6 from 47.4 in April, the highest reading since August 2021.

The report showed business activity in May fell at the slowest pace since July last year, with companies hiring more workers amid growing confidence that sales will begin to improve.

Similarly, new business fell at its slowest rate since September 2021, with new export orders rising for the second time in three months as foreign demand surged.

“The May PMI reading of 49.6 was the first indication that the rapid cooling of price pressures was beginning to stimulate Egypt’s non-oil private sector. Manufacturing and new orders rates closed most of the gaps to the 50.0 growth threshold, and the services and construction sectors even saw improved activity as comments suggested greater price stability was driving customer spending,” said David Owen, senior economist at S&P Global Market Analysis .

He added: “That said, the continuing downturn in industries such as manufacturing and wholesale and retail trade shows that the recovery is still uneven and may take longer to spread to the rest of the economy.”

On the other hand, business activity declined moderately in May, reflecting a mixed picture across sectors. Further declines were recorded in the manufacturing, wholesale and retail sectors, contrasting with increases in services and construction.

“With input cost inflation continuing to decline, the data nonetheless signals a promising outlook for Egyptian businesses. “Purchasing costs rose at their slowest pace in four years, leading to only a mild increase in selling prices, which should increase customer confidence in spending,” Owen added.

The survey also showed that business confidence in the 12-month outlook increased in May as companies hoped for improved economic conditions in the coming months.

Qatar’s non-oil sector is gaining momentum

Meanwhile, Qatar Financial Center revealed that the country’s PMI reached 53.6 in May, up from 52.0 in April.

Qatar’s private non-energy sector gained significant momentum in May, driven by production growth and new orders, according to the report.

“May’s results clearly demonstrate that the non-energy private sector has kicked into high gear as we approach mid-2024.

The pace of production growth and new orders has accelerated significantly, and companies have become more optimistic about the next 12 months,” said Yousuf Mohamed Al-Jaida, CEO of QFC Authority.

He added: “Both the wholesale and retail sectors and services continued to drive expansion in May, with financial services remaining a bright spot.”

The report added that financial services firms in Qatar also saw much faster growth in the volume of total business activity and new contracts in May.

Moreover, in May, entrepreneurs’ confidence in the next 12 months strengthened, driven by development plans and marketing campaigns.

The report found that the level of new work coming in was growing at the fastest pace in eight months, with companies attributing this trend to high-quality products and services.