RIYADH: Saudi Arabia’s economy showed healthy improvement in the non-oil private sector in January, driven by strong business activity and new orders, an economic tracker showed.
The Kingdom’s Purchasing Managers’ Index stood at 55.4 in January, indicating economic expansion, as it is above 50. However, in comparison to December’s 57.5, there is a decline, attributed to softened expansion rates due to inflationary pressures and increasing purchasing costs, as per the Riyad Bank Saudi Arabia PMI report by S&P Global.
Naif Al-Ghaith, chief economist at Riyad Bank, commented in the report: “In recent assessments of the Saudi Purchasing Managers’ Index, it’s clear that the non-oil economy has continued to grow, despite challenges stemming from rising costs and interest rates. This resilience underscores the diversification efforts within the Saudi economy.”
As per the report, rising purchasing costs were driven by inflationary pressures arising from increased demand for inputs and higher material prices, coupled with escalating supply chain risks. Nevertheless, competitive forces compelled companies to refrain from raising their fees.
The economist explained that this implies businesses are absorbing certain cost pressures rather than transferring them to consumers, potentially reflecting a strategy to retain market share in a competitive environment.
The report also linked the significant increase in purchase prices, the most pronounced since May 2012, to escalating shipping costs likely influenced by supply chain risks amid the Red Sea crisis. Coupled with a substantial rise in staff costs, this contributed to the highest level of input price inflation since August 2020.
This prompted companies to moderate procurement activities due to diminishing demand conditions, resulting in the rate of purchasing growth reaching an eight-month low.
The report mentioned a slight increase in staffing, resulting in backlogs of work within the non-oil sector. Al-Ghaith also connected the backlog growth to a rise in the construction sector in the Kingdom, likely associated with ongoing infrastructure projects and real estate development.
“This expansion not only points to economic growth but also signifies a positive outlook for the construction industry in Saudi Arabia, potentially indicating a period of sustained expansion and investment in the sector,” the economist commented.
Regarding the future outlook, firms expressed apprehensions that persistent inflationary pressures and limited demand growth could impact business expansion in 2024. Consequently, this led to a downturn in business expectations, marking the second-weakest level since mid-2020.
