Saudi Arabia’s non-oil private sector started the second quarter of 2024 with another strong month-on-month expansion due to strong demand conditions across domestic markets, leading business activity to expand at a substantial pace. Despite slight declines in employment due to cost considerations, overall input price inflation eased to a nine-month low, fostering a positive outlook for the sector.
The seasonally adjusted S&P Global Riyad Bank Saudi Arabia Purchasing Managers’ Index (PMI) held steady in April at 57.0, matching March’s levels. Subsequently, this indicated a further sharp month-on-month improvement in operating conditions within Saudi Arabia’s non-oil private sector.
“This uptrend hints at an anticipated spike in the non-oil GDP, likely exceeding the 4.5 percent mark for this year. Noteworthy is the surge in new orders and inventory expansion, indicative of a proactive response to mounting demand within the market,” stated Naif Al Ghaith, chief economist at Riyad Bank.
Business activity expands
Since 2020, Saudi Arabia has witnessed an expansion in new orders within its non-oil private sector. This trend remained robust in April due to competitive pricing, promotional activity, investment, and expanding client bases, particularly in the domestic market. Therefore, business activity rose sharply at the start of the second quarter. Wholesale and retail emerged as the sub-sector with the strongest expansion in output.
To meet rising demand, purchasing activity in Saudi Arabia’s non-oil sector saw a sharp increase in April, with firms stocking up on raw materials and other necessary items for production. Stocks of purchases reached a survey-record high at the start of the second quarter, indicating confidence in future demand and expansion plans.
Supplier performance
Delivery times became faster, indicating an improvement in supplier performance. However, the extent of improvement was the weakest in eight months. Backlogs of work rose for the first time in three months, signaling pressures on capacity. However, the rate of accumulation was the quickest in four-and-a-half years, underscoring sustained demand.
Despite the overall positive sentiment, non-oil private sector firms in Saudi Arabia reduced employment levels for the first time in just over two years in April due to cost and cashflow considerations. Although staff costs increased marginally, overall input costs rose at the slowest rate since last July, providing some relief to businesses.
“Despite a decline in employment figures, there’s a notable increase in the costs associated with employment to incentivize the workforce. This strategy aims to bolster productivity and ensure the retention of skilled workers within the expanding economy,” added Al Ghaith.
Read: Saudi Arabia’s non-oil revenues rise 9 percent to $29.73 billion in Q1 2024: MoF
Pricing strategies
With total operating expenses increasing at a softer pace, non-oil private sector firms in Saudi Arabia adopted a more cautious approach to pricing in April. Some even offered discounts to customers to enhance competitiveness. Output prices rose for a sixth successive month, albeit only marginally.
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