- Saudi Arabia’s non-oil private sector showed steady growth in January, with a PMI of 55.4. However, growth has softened recently due to rising costs.
- Inflationary pressures are squeezing profit margins, as firms absorb higher costs rather than raise prices. This reflects a strategy to retain market share.
- Business optimism has declined due to concerns over persistent inflation and limited demand growth. However proactive policies can help Saudi Arabia navigate challenges.
Saudi Arabia’s non-oil private sector continued to expand in January 2024, according to the latest Riyad Bank Saudi Arabia Purchasing Managers’ Index (PMI) report. The PMI reading stood at a robust 55.4, indicating healthy growth, although down slightly from December’s 57.5.
The non-oil economy has shown resilience despite inflationary pressures, underscoring Saudi Arabia’s successful economic diversification efforts, explained Riyad Bank’s Chief Economist Naif Al-Ghaith. However, rising costs and supply chain disruptions are impacting businesses.
Input price inflation hit an over three-year high in January, driven by escalating material and shipping costs. The latter likely reflects ongoing global supply chain strains, exacerbated by the recent crisis in the Red Sea region. With staff costs also rising substantially, companies saw profit margins squeezed.
Firms have so far avoided fully passing higher costs onto customers, possibly to retain market share in a competitive climate. However, this meant new order growth softened compared to December. Purchasing activity has also moderated due to weaker demand.
Employment continued to rise steadily, although backlogs of work increased. Al-Ghaith connected this to the buoyant construction sector, with major infrastructure and real estate projects underway. “This expansion signifies a positive outlook for the construction industry in Saudi Arabia, potentially indicating a period of sustained expansion and investment,” he remarked.
Looking ahead, concerns over persistent inflation and limited demand growth have dampened optimism. Business expectations for the next 12 months are at their second-weakest since mid-2020.
Nevertheless, the non-oil economy’s solid performance shows Saudi Arabia’s economic strengths as it pushes ahead with Vision 2030 diversification. With proactive policies to control costs and stimulate growth, the country can navigate global headwinds.
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