Non-oil business activity in Saudi Arabia expanded at a lower pace in July, according to the Riyad Bank Saudi Arabia PMI (pdf). The seasonally adjusted figure stood at 56.3 in July, down from 57.2 in June. Growth was broadly supported by increases in output, new orders, stocks of purchases, and employment — despite output and new business growth easing during the month.

“July’s outturn would, on past form, be consistent with non-oil GDP growth of around 1% q-o-q at the start of 3Q, broadly in line with 2Q’s performance,” Capital Economics’ James Swanston wrote in a recent research note seen by EnterpriseAM.

Output continues growing, albeit at a slowing pace: While output expanded in July, the pace of growth was the slowest in three-and-a-half years, according to Riyad Bank. Work on existing projects and new orders helped sustain the expansion in output, but some companies noted higher competition and lower customer footfall dampening growth. New export orders also saw a decrease for the first time in nine months, which was attributed to difficulties in acquiring new foreign clients.

Purchasing activity rises at a slower pace: Firms’ purchasing activity also rose at a slower pace in July compared to the previous month. Sizeable inventory growth was recorded, driven by gains among manufacturers and wholesale and retail firms. While delivery times were shortened, the rate of improvement eased significantly due to customs delays.

New employment levels rise to accommodate growing output: Companies responded to higher activity and new orders by hiring new staff, marking another rise in employment after June’s survey showed the fastest increase in over 14 years. The increased hiring was partly driven by an uptick in backlogs, as existing contracts and constrained capacity delayed the completion of new orders.

Cost pressures soften despite rising labor costs: Input cost inflation remained a pain point for businesses, even as they reported a “modest slowdown.” Businesses responded to the cost pressure from rising input costs by raising output prices for the second consecutive month. These markups were most prominent among services, construction, and manufacturing businesses, while wholesale and retail price adjustments were more modest, according to Riyad Bank Chief Economist Naif Al Ghaith.

Business confidence for the year ahead remained positive but softened from June’s two-year high. Overall optimism was at its lowest level since July 2024. Firms still expect output to increase, supported by steady demand, strong project pipelines, and ongoing investment tied to Vision 2030. “Employment conditions are expected to stay supportive, helping firms manage future workloads,” Al Ghaith said.

What’s next for the Gulf overall? “We think that activity in non-oil sectors across much of the Gulf will continue to soften over the coming quarters. Low oil prices will more than offset rising output volumes and, in turn, export receipts will be weaker this year than last. Current account and budget balances will deteriorate, prompting officials to make fiscal policy less supportive,” Swanston said in the note.

ALSO FROM THE REGION-

  • In the UAE, the non-oil private sector (pdf) plunged to its lowest reading in over four years, as regional tensions continued to weigh on sales.
  • Egypt’s non-oil private sector activity (pdf) declined for the fifth consecutive month, although the rate of decline eased from the prior month.
  • Kuwait maintained solid growth (pdf), supported by a strong increase in new orders and business activity.
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