Saudi Arabia: Saudi Arabia’s non-oil sector registered its first growth since February on Riyad Bank’s Purchasing Managers’ Index, as the Kingdom’s overall score saw a monthly rise of 0.4 points.

The economic tracker for August came in at 54.8 – up from 54.4 in July – in a sign that business activity in Saudi Arabia is continuing to expand.

The report highlighted a key trend of robust job creation, with employment numbers increasing at one of the sharpest rates in a decade. This uptick in hiring reflects increased efforts by companies to expand their operating capacity, driven by a combination of rising new orders and positive business expectations.

The index remained below its long-run average of 56.9 and continued to indicate a slower pace of expansion compared to recent years.

Chief Economist at Riyad Bank Naif Al-Ghaith noted the expansion of business activity came  despite the challenges posed by the competitive market environment.

He added: “Saudi Arabia’s non-oil sector continues to demonstrate economic resilience, underscored by a robust 4.4 percent increase in non-oil GDP in the second quarter of 2024, reflecting the ongoing success of the Kingdom’s diversification efforts.”

Despite the positive indicators, the analysis also pointed out that overall growth in non-oil private sector output was at one of its weakest levels since early 2022. This slowdown has prompted businesses to reduce their selling prices for the second consecutive month in an effort to reaccelerate demand. 

While margins were squeezed, the rise in purchase costs was weaker compared to the previous month, offering some relief to companies.

Al-Ghaith added: “The increase in new export orders, although slower than the overall growth, shows that Saudi companies are finding opportunities abroad despite facing tough competition in international markets.”

He went on to say: “This expansion in exports is crucial for the Saudi economy as it works to diversify away from oil dependency and strengthen other sectors.”

The report also highlighted that non-oil firms were more optimistic about future activity, with expectations for the year ahead rising to their highest levels since March. Companies are anticipating further growth driven by investment, tourism, and population growth, which are expected to bolster output in the coming months.

“The Kingdom’s Vision 2030 initiative, aimed at reducing reliance on oil revenues, is bearing fruit as the non-oil economy continues to grow driven by a combination of domestic reforms and global economic integration,” Al-Ghaith concluded.

Across the region

Egypt’s non-oil private sector witnessed a notable resurgence in August, achieving growth for the first time in three years. 

The latest data from the S&P Global Egypt Purchasing Managers’ Index revealed a climb to 50.4 from 49.7 in July, crossing the critical 50 threshold that separates growth from contraction. 

This improvement signals a positive shift in operating conditions for non-oil businesses, a milestone not reached since November 2020.

The increase in PMI was driven by several encouraging developments within the sector. 

Businesses ramped up their output levels, expanded inventories, and hired additional staff as confidence in the market rebounded. 

The demand recovery, although fragile, contributed to this uplift, with many firms reporting a more stable macroeconomic environment and a rise in export business. 

These factors collectively bolstered business activity, which grew for the first time in three years, though the pace of expansion remained marginal.

David Owen, senior economist at S&P Global Market Intelligence, said: “The August survey data point to a recovery in business conditions, as the PMI’s rise above 50.0 reflects an improvement in non-oil businesses for the first time since late 2020.”

He added: “The growth in output, employment, and purchasing activity demonstrates that firms are increasingly confident about expanding their operations and capacity. However, the landscape remains challenging, with ongoing weak client demand and mounting inflationary pressures.”

Despite these positive indicators, the sector faced significant challenges, particularly on the cost side. The Egyptian pound’s continued depreciation against the US dollar led to a sharp increase in input costs, exacerbating inflationary pressures. 

Businesses reported substantial rises in purchase prices, which in turn forced them to increase their selling prices to safeguard margins. 

The pace of inflation accelerated for the third consecutive month, with transport costs and staff wages also climbing as firms adjusted salaries to cope with rising living costs.

The data also pointed to a mixed outlook for new orders, which declined slightly for the second month, reflecting continued weaknesses in client demand. This decline was only marginal, indicating that while the market stabilizes, it has not yet fully recovered.

In contrast to Egypt’s modest recovery, Kuwait’s non-oil private sector displayed signs of a slowdown in August. 

Competitive pressures within the market led to only marginal increases in output and new orders, with the S&P Global Kuwait PMI slipping below the 50 mark for the first time in over a year and a half, settling at 49.7. 

Employment in Kuwait’s non-oil sector also decreased for the first time in four months, as slower growth in new orders prompted some firms to reduce their workforce.

Andrew Harker, economics director at S&P Global Market Intelligence, said: “Intense competition in the Kuwaiti non-oil private sector dampened growth in August.