Saudi Arabia's business conditions across non-oil sector at more than seven-year high

The Arab world's largest economy continues to improve on strong output and new orders, which accelerated at their fastest pace in 14 months

The Riyadh skyline. Saudi Arabia's economy is expected to be one of the fastest growing this year globally. Reuters

Business activity in the non-oil private sector economy of Saudi Arabia continued to improve in November, growing at the fastest pace since August 2015 as new order growth accelerated to a 14-month high, leading to a sharper rise in purchasing activity.

The reading on Riyad Bank's purchasing managers’ index for Saudi Arabia jumped to 58.5, from 57.2 in October, well above the neutral 50 mark that separates growth from contraction.

The reading was also the highest since September 2021 and above the long-run series average of 56.8.

“The Saudi economy is continuing its expansion in the non-oil sector … business conditions have improved across the board in light of rising demand,” said Naif Al-Ghaith, chief economist at Riyad Bank.

“Output levels have expanded at the fastest pace in seven years, driving cost pressures higher and resulting in increased prices charged to consumers. Improved business expectations [were] also observed as a result of the ongoing execution of Vision 2030 initiatives, which provided confidence to the outlook of future output of the non-oil activities.”

The kingdom's Vision 2030 plan aims to diversify the Arab world's largest economy and reduce its reliance on oil by growing its manufacturing, tourism, technology and entertainment industries and opening up capital markets to foreign investors.

Non-oil companies cited an a sharp rise in new business in November, which survey panellists attributed to improving economic conditions, rising client demand and increased investment.

The rate of sales growth was at its sharpest in more than a year, with more than 41 per cent of surveyed businesses reporting an increase from the previous month.

In addition to strong domestic conditions, companies registered the quickest increase in new export business since November 2015, with output levels expanding at their strongest pace in more than seven years across the manufacturing, construction, wholesale and retail and services sectors.

The rise in activity helped companies to complete new orders and reduce work backlogs for the sixth month running. Rising demand encouraged non-oil businesses to expand their purchases in November while input buying rose at the second-fastest rate since August 2015, leading to a robust increase in stock levels.

Employment in the kingdom rose only slightly, with most companies keeping staffing unchanged from the month before.

The outlook for output was higher in November, leading to the most optimistic forecast for the coming year since January 2021, according to the survey.

Panellists said rising new orders and the government's Vision 2030 initiative gave them confidence that activity would strengthen.

Saudi Arabia’s economy grew by 12.2 per cent in the second quarter, exceeding initial estimates and registering the fastest expansion in more than a decade on the back of higher oil prices.

The annualised real gross domestic product growth in three months to the end of June was the quickest since the third quarter of 2011, according to the kingdom’s General Authority for Statistics (Gastat).

Oil-related economic activity in Saudi Arabia, Opec’s biggest crude producer, jumped by about 23 per cent on an annual basis in the second quarter.

Non-oil economic activity rose 8.2 per cent, revised higher by Gastat from an earlier 5.4 per cent flash estimate.

The kingdom's economy is set to grow at the quickest pace in a decade and could be one of the world’s fastest-growing economies this year, according to the International Monetary Fund.

Saudi Arabia’s gross domestic product is forecast to expand 7.6 per cent this year, after growing 3.2 per cent in 2021, according to the fund.

The pace of growth of the kingdom's non-oil economy will rise to 4.2 per cent in 2022 before returning to its medium-term potential of 4 per cent.

The Saudi economy is set to grow 8.7 per cent this year, according to Jadwa Investment, while the Organisation for Economic Co-operation and Development projects an expansion of as much as 9.9 per cent this year.

Meanwhile, Egypt's S&P Global purchasing managers’ index reading, a composite gauge designed to give a single-figure snapshot of operating conditions in the non-oil private sector economy, fell to 45.4 in November, from 47.7 in October.

The reading was the second lowest since June 2020, extending the current sub-50 sequence to two years.

Surveyed panellists said rising costs and falling new orders forced them to cut output.

The rate of decline in new orders deepened in November, due to customers cutting back on spending as a result of higher inflation and interest rates.

A sharp depreciation of the Egyptian pound against the US dollar, which paved the way for a new agreement with the IMF, also contributed to the latest decline in operating performance.

“The pound's depreciation against the US dollar led to a marked increase in prices paid for raw materials, which have already been exacerbated by import restrictions since early-2022,” said David Owen, an S&P Global Market Intelligence economist.

“The latest downturn also came in the midst of an emergency 2 per cent hike in interest rates, amid continued efforts to bring inflation down from its current four-year high of 16.2 per cent.

“While the latest foreign exchange move signals a further rise in inflation in November, it is hoped that slowing demand and falling commodity prices will start to alleviate price pressures in the medium to long-term.”

The UAE's PMI reading is expected to be released on Wednesday.