Saudi Arabia experienced a slowdown in non-oil business activity during the month of May, as growth in new orders and output eased, according to a recent business survey. However, the rate of job creation reached its highest level since the beginning of 2018, offering a glimmer of optimism amidst the overall deceleration.
The headline Purchasing Managers Index (PMI) dropped from 59.6 in April to 58.5 in May, primarily due to downward movements in the index’s two largest components: New Orders and Output. Despite this decline, the PMI remained comfortably above the growth threshold of 50.0 and exceeded its long-term average of 56.9.
The survey, conducted by Riyadh Bank, highlighted a continued rise in new order inflows for non-oil private sector businesses, although the rate of expansion slowed slightly compared to the previous month. Sales from foreign clients experienced a renewed upturn, contributing to the overall growth. Naif Al-Ghaith, Chief Economist at Riyad Bank, remarked that while a slower oil economy and rising interest rates present challenges, most Saudi firms are in a favorable position and benefiting from robust business conditions.
The report noted that activity levels in May remained on an upward trajectory, although the rate of expansion softened and marked the slowest recorded growth so far in 2023. Firms increased their purchases of inputs and key components, albeit to a lesser extent than in the previous five months.
Employment growth remained relatively strong, with the rate of job creation reaching its joint-fastest pace since 2018. Al-Ghaith attributed this growth to considerable new orders, particularly in tourism activities and construction, which allowed firms to work through backlogs at a faster pace.
The survey also indicated a slight easing in business expectations for the next 12 months, although optimism regarding future output remained. Al-Ghaith emphasized the government’s commitment to implementing large-scale diversification policies and accelerating the development of giga-projects, aimed at boosting the private sector and fostering job creation.
As Saudi Arabia grapples with a slower oil economy and rising interest rates, the non-oil private sector is showing resilience, maintaining healthy business conditions and a positive outlook for the future.
