Non-oil business activity in Saudi Arabia gained more momentum in August, boosted by a marked upturn in new orders, according to the Riyad Bank Saudi Arabia PMI (pdf). The seasonally adjusted figure hit 56.4 during the month, slightly up from 56.3 in July. This reading, which is well above the 50.0 mark that separates growth from contraction, signals a solid expansion, though it remains notably lower than January’s peak of 60.5.

“August’s outturn is, on past form, consistent with non-oil GDP growth of around 1% q-o-q in Q3, broadly in line with Q2’s performance,” Capital Economics’ James Swanston noted in a recent research note seen by EnterpriseAM.

New orders saw a slight uptick in August, supported in part by a renewed growth in export sales. Firms attributed this improvement to enhanced marketing efforts in external markets, stronger collaborations with clients in the GCC. Additional support came from rising client demand and domestic infrastructure projects.

Output growth picked up in August, but the overall increase remained just above the 42-month low recorded in July. Firms reported that better economic conditions, stronger sales, and proactive marketing efforts supported the rise in business activity.

Purchasing activity and inventories saw a significant boost: Businesses accelerated their purchasing activity in August at a faster rate than in July. This led to a four-month high in total inventories, as firms stepped up purchasing to meet current and expected demand.

Employment also continued to increase sharply, with the pace of expansion being the softest since May, though it remained historically robust. This rise was largely driven by expanded sales departments, fresh project initiations and rising skills requirements. “Employment trends remained broadly supportive, with firms continuing to expand their headcounts to meet current and expected demand,” Riyad Bank Chief Economist Naif Al Ghaith wrote in the report.

Ongoing cost pressures pushed selling prices up: Input costs rose sharply in August, mainly due to a sharp rise in purchasing prices. “Input prices remained elevated due to persistent pressures on material, transport, and technology-related expenses. Wage pressures eased slightly, but firms still faced broad cost challenges. With an increase in demand and the above factors, output prices continue to grow, though increases were generally modest,” Al Ghaith noted.

Business sentiment remains positive: Output expectations improved in August after hitting a 12-month low in July. Firms pointed to increased demand, ongoing projects, and supportive government policies as key drivers of their positive outlook.

The bigger picture: Looking ahead, non-oil sector activity across much of the Gulf is forecast to moderate, Swanston noted. “Low oil prices will more than offset rising output volumes and, in turn, export receipts will be weaker this year than last,” Swanston wrote, adding that “current account and budget balances will deteriorate, prompting officials to make fiscal policy less supportive.”

ELSEWHERE IN THE REGION-

  • In the UAE, the non-oil private sector continued to lose momentum in August, with the headline PMI pdf coming in at 53.3 from a 49-month low of 52.9 in July.
  • Egypt saw a modest contraction in its non-oil private activities (pdf), with the headline PMI recording 49.2, marking a slight acceleration in contraction from July’s 49.5;
  • Kuwait’s non-oil private sector saw further improvement in business conditions, albeit at a slower pace, with the headline PMI coming in at 53.0 (pdf).
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