Non-oil sector growth in the Kingdom recorded its best performance since September 2014 in January, with the country seeing the fastest increase in total new orders since June 2011, according to Riyad Bank Saudi Arabia PMI (pdf). The seasonally adjusted headline figure inched up to 60.5, up from 58.4 in December, moving it well beyond the 50.0 mark that separates growth from contraction.

New orders soared during the month: The new orders subindex accelerated to a reading of 71.1 in January, up from 65.5 in the previous month, driven by “accommodative economic conditions” and new infrastructure projects, which helped boost customer orders and total export sales. The index saw the highest rise in new work intakes in a little under 14 years.

“Nearly 45% of firms observed higher sales volumes, attributing this growth to positive economic conditions and the acceleration of infrastructure projects. The rise in export orders further complemented domestic demand, particularly from GCC countries, reflecting effective marketing and competitive pricing strategies,” Riyad Bank Chief Economist Naif Al Ghaith said.

Purchasing and employment were also up: Firms’ purchasing activity remained positive in January, with 35% of respondents seeing an uplift in the quantity of new inputs bought. The rate of employment was also positive throughout the month, with hiring levels “rising solidly.”

A rise in input costs represented the main downside for the Kingdom: Input price inflation rose at its second-fastest in almost four-and-a-half years in non-oil firms, which many attributed to higher material prices driven by heightened demand and continuing geopolitical tensions. This, in turn, led firms to raise their output prices at the fastest pace in a year.

Strength in the non-oil sector is not expected to last very long: “In Saudi at least, we doubt that the strength in its non-oil sector will last as fiscal policy is tightened,” Capital Economics wrote in a note seen by EnterpriseAM Saudi. “We think GDP growth will accelerate this year as oil output cuts are unwound, but activity in the non-oil sector is likely to soften on the back of a turn to fiscal consolidation,” Capital Economics’ James Swanston wrote in a separate note.

Meanwhile, the World Bank expects “robust activity in the non-oil sector — especially in services — as well as higher oil production and exports,” the bank said in its latest Global Economic Prospects report.

Driving growth amid Opec+’s oil cuts until April is “a high level of Vision 2030-related investment and socio-economic reforms,” which will represent the key drivers for non-oil growth in the Kingdom, Goldman Sachs Group’s MENA Economist Farouk Soussa told Bloomberg last week.

Non-oil businesses remain positive over the outlook for the year: Saudi firms remain highly optimistic for the year, with businesses expecting to see sustained growth in demand and supportive market conditions throughout 2025. This has reflected in the Kingdom’s employment trends — with companies expanding their workforces to meet growing demand — as well as in supply chain improvements and higher purchasing activity among businesses.

REFRESHER ON LAST YEAR’S NON-OIL ACTIVITY- Non-oil private sector activity grew at the slowest clip in two years in January 2024, with the first PMI reading of last year clocking in at 55.4 before picking up to 57.2 in February, and maintaining momentum through to April (57.0). The pace of expansion gradually decelerated from May (56.4) to July (54.4), as demand softened and competition intensified, before recovering in August (54.8) and gaining further traction in September (56.3) and October (56.9). Finally, the headline figure peaked in November (59.0), before slowing in December (58.4), despite a record pick-up in sales and new orders.

The story was also picked up by Reuters.

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