In a significant economic development, Saudi Arabia’s non-oil business activity has seen a downturn, reaching its lowest point in two and a half years according to the latest Purchasing Managers’ Index (PMI). This decline raises questions about the robustness of the Kingdom’s diversification efforts away from its oil-dependent economy.
The PMI, a key indicator of economic health in the non-oil sector, dropped to a level not seen since January 2022. This slowdown is attributed to a weaker upturn in new order volumes and a subdued growth rate for the third consecutive month. Despite this, the PMI remains above the neutral mark, indicating an overall expansion in business conditions, albeit at a slower pace.
Companies in the non-oil private sector have ramped up their output levels to support sales and projects, reflecting a strong improvement in business activity. However, the growth of new order intakes has fallen to its weakest level in nearly two and a half years, suggesting a softening in demand prospects.
Navigating Economic Headwinds
The slowdown in non-oil business activity comes at a time when Saudi Arabia is pushing for economic diversification under its Vision 2030 plan. The Kingdom has been working to reduce its reliance on oil revenues by bolstering other sectors of the economy. However, the recent PMI figures suggest that these efforts are facing challenges.
Input purchases for non-oil businesses have seen the slowest rise in nearly three years, as companies look to temper recent surges in stockpiles. Additionally, job creation growth has softened from May, with tighter constraints on operational costs due to wage pressures. While some non-oil companies report stronger demand, others signal a softening of market conditions.
The Road Ahead for Saudi Economy
Despite the current slowdown, the outlook for Saudi Arabia’s non-oil GDP remains positive, with expectations of growth exceeding 3%. The overall performance of non-oil sectors throughout the quarter continues to drive economic growth and diversification efforts in the country.
The high output levels, stable supply chains, and moderate job creation point towards a resilient and expanding non-oil economy. However, the recent PMI data serves as a reminder that the path to economic diversification is complex and subject to fluctuations in global market conditions.
