RIYADH: Business conditions for Saudi Arabia’s non-oil private sector strengthened in September, thanks to improved sales momentum and an increase in new orders, according to an economic observer.
The Riyadh Bank Saudi Arabia PMI survey, compiled by S&P Global, showed the Kingdom’s purchasing managers index rose to 56.3 in September, up from 54.8 in August.
S&P Global noted that any PMI reading above 50 indicates growth in the non-oil sector, while readings below 50 signal contraction.
Supporting the growth of the non-oil sector is a key objective of Saudi Arabia’s Vision 2030 initiative, which aims to diversify the economy and reduce dependence on oil revenues.
“The rise in Saudi Arabia’s PMI index to 56.3 shows the highest level in four months, highlighting a notable acceleration in the growth of the non-oil private sector. The rise is mainly due to the increase in production and new orders, reflecting the expansion of sector activity,” said Naif Al-Ghaith, chief economist at Riyad Bank.
He added: “Businesses are responding to stronger domestic demand, which plays a critical role in reducing Saudi Arabia’s dependence on oil revenues.”
Al-Ghaith also highlighted the importance of growth in the non-oil sector, given current reductions in crude production and falling global oil prices.
To stabilize the market, Saudi Arabia reduced its oil production by 500,000 barrels per day in April 2023, with the reduction extended until December 2024.
“While oil revenues are under pressure, the strong performance of the non-oil private sector serves as a buffer, helping to mitigate the potential impact on the country’s economic health. Diversifying revenue sources is essential to sustain growth in a context of fluctuating oil markets,” Al-Ghaith said.
The report also said improving business conditions supported job growth, although businesses struggled to find skilled workers in September.
Despite strengthening demand, businesses have expressed concerns about competitive pressures, dampening expectations for future activity.
S&P Global notes that increased competition has led to a reduction in sales prices for the third consecutive month, despite companies’ rising costs.
“Increasing production levels not only strengthens the competitiveness of Saudi businesses, but also stimulates developments aimed at increasing private sector participation in the economy. This development provides a more stable basis for long-term growth, making the economy less vulnerable to oil price volatility,” Al-Ghaith said.
According to the report, growth was robust and widespread in controlled segments of the non-oil economy, with respondents citing rising demand and approval of new projects.
“By increasing production in key non-oil industries, Saudi Arabia is better positioned to meet the challenges of oil market fluctuations, thereby ensuring a more sustainable and diversified economic future,” concluded Al-Ghaith.
This text is the translation of an article published on Arabnews.com
