Saudi private sector grows at fastest pace in six months

Bloomberg – Saudi Arabia’s non-oil private sector activity accelerated to a six-month high in August, driven by a rebound in production and improved domestic demand, despite continued weakness in exports. The sector largely ignored regional geopolitical tensions, even as firms continued to grapple with rising material and transport costs.

The Riyad Bank Purchasing Managers’ Index rose to 53.8 points from 53.1 in July, marking its highest reading in six months and maintaining its position above the 50-point threshold separating growth from contraction for a fifth consecutive month. However, the reading remained below the index’s historical average of 56.8 points, according to survey data.

The improvement in non-oil private sector activity was supported by a business activity acceleration to its strongest pace in seven months, approaching its long-term average, as companies benefited from higher sales volumes and recovering market conditions. New orders also continued to grow for the fifth straight month, following a slight dip in March.

However, strong domestic demand was offset by persistent weakness in external demand, with export orders declining at a sharper pace than in July amid regional tensions. Some firms reported sales pressures due to intense competition and oversupply, which limited the overall strength of demand improvement.

Meanwhile, companies continued to increase employment for the second consecutive month, although the pace of job creation remained modest. Indicative of continued excess production capacity, the volume of backlogged work fell for the third straight month.

Inflation in Saudi Arabia remains under control, but rising global shipping and insurance costs due to external developments could generate near-term price pressures, according to Ayman bin Mohammed Al-Sayari, Governor of the Saudi Central Bank (SAMA), in an earlier statement.

Supply chain conditions also continued to improve, supported by increased efforts to source goods locally and better supplier responsiveness, although the pace of improvement was the slowest in the past three months.