Non-oil business activity in the Kingdom continued to expand in February on the back of strong customer sales and increased levels of business activity, according to the Riyad Bank Saudi Arabia PMI (pdf). The seasonally adjusted headline figure came in at 58.4 in February, dipping down from the over decade-high reading of 60.5 in January as new business growth cooled slightly.

The new orders subindex fell to 65.4 in February, down from 71.1 in January, according to Reuters. Non-oil firms continued to highlight strong growth in new order volumes, with some 35% reporting an increase in sales in February, compared to just 5% reporting a decline. The rise in demand was partly driven by global markets, as new export business increased sharply, while some companies reported attracting customers through price promotions.

Firms continued to increase their inventory — albeit at a slower pace, with purchasing seeing a slowdown in February. This was attributed to many firms having already accumulated inventory in previous months, Riyad Bank Chief Economist Naif Al Ghaith said.

Input price inflation continued to rise during the month, which was driven by higher material prices and wages. However, the rate of inflation eased slightly in February to its lowest level in four months. Despite higher input costs, the month saw a modest rise in output prices due to competitive pricing pressures.

Employment rose at its fastest pace in 16 months, hitting its second-highest level in over 10 years. Job growth was particularly strong in the manufacturing and services sectors, “which also observed the highest levels of confidence.” This comes as firms look to expand their operational capacity to prepare for growth, and reflects confidence from businesses over future demand, according to Al Ghaith.

Optimism remains high: Business confidence in Saudi Arabia reached its highest level in 15 months, as businesses conveyed optimism over economic growth and government initiatives that could help support their development and expansion. “While the PMI moderated slightly, the underlying indicators suggest that the private sector remains well-positioned for continued expansion, supported by a positive outlook for business activity and market conditions,” Al Ghaith said.

Is strength in the non-oil sector going to be short-lived? “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 previously 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. The World Bank, meanwhile, expects “robust activity in the non-oil sector — especially in services — as well as higher oil production and exports,” it said in its latest Global Economic Prospects report.

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