In July 2024, Saudi Arabia’s non-oil sector experienced a slowdown in growth, as indicated by the latest Purchasing Managers’ Index (PMI) report. The seasonally-adjusted Riyad Bank Saudi Arabia PMI fell to 54.4 from 55.0 in June, marking the lowest reading since January 2022. Despite the decline, the index remains above the 50 level, which signifies growth in the sector. This easing of growth is attributed to various factors, including capacity pressures and increased competition, although demand continues to support business activity.
The PMI report highlighted a deceleration in the pace of new orders, which increased at the slowest rate in two and a half years. The New Order sub-index dropped to 55.7 in July from 56.0 in June. This slowdown is partly due to capacity constraints and heightened competition in the market. Businesses are facing challenges in maintaining their market share, leading to downward pressure on prices as companies offer more attractive pricing to consumers.
Despite these challenges, demand has played a crucial role in driving orders and ensuring that businesses remain active. The sustained demand indicates a resilient market, even as companies navigate the pressures of competition and capacity limitations. The slower pace of new orders reflects the broader economic environment, where businesses are adapting to changing market dynamics.
The report also noted that output growth eased to a six-month low, further indicating the impact of capacity pressures on business operations. Companies are striving to balance production capabilities with market demand, which has led to a more measured pace of growth in the non-oil sector.
Economic Diversification Efforts
Saudi Arabia’s commitment to economic diversification under Vision 2030 continues to drive non-oil sector growth. The government’s efforts to expand the private sector and reduce reliance on oil revenues are evident in the sustained activity within the non-oil economy. Despite the recent slowdown, the non-oil sector remains a vital component of the kingdom’s economic strategy.
The PMI report underscores the importance of ongoing investment in non-oil sectors to support economic growth. While lower oil revenues may constrain investment in some areas, the government’s focus on diversification is likely to keep non-oil growth buoyant. Initiatives aimed at enhancing infrastructure, technology, and innovation are expected to contribute to the long-term resilience of the non-oil economy.
The diversification efforts are also reflected in the broader economic indicators. Saudi Arabia’s real gross domestic product (GDP) shrank by 0.4% in the second quarter year-on-year, driven by a decline in oil activities. However, the non-oil sector’s performance highlights the potential for growth and stability in other areas of the economy.
Market Outlook
Looking ahead, the outlook for Saudi Arabia’s non-oil sector remains cautiously optimistic. The PMI report suggests that while growth has eased, the sector continues to expand, supported by sustained demand and government initiatives. The challenges of capacity pressures and competition are likely to persist, but businesses are expected to adapt and find new ways to maintain their market positions.
The government’s commitment to economic diversification and private sector development will play a crucial role in shaping the future of the non-oil economy. Continued investment in infrastructure, technology, and innovation will be essential to support growth and enhance competitiveness. The focus on creating a more diversified and resilient economy aligns with the broader goals of Vision 2030.
In conclusion, the easing of growth in Saudi Arabia’s non-oil sector in July reflects the dynamic nature of the market and the challenges businesses face. However, the sustained demand and ongoing diversification efforts provide a solid foundation for future growth. As the kingdom continues to navigate its economic transformation, the non-oil sector will remain a key driver of economic stability and development.
