Non-oil sector bounces back on local orders and ceasefire boost

The Saudi non-oil private sector found its footing again in April. The headline index rose to 51.5, up from March’s 48.8, according to the Riyad Bank Saudi Arabia PMI (pdf). The move back above the 50.0 threshold signals a modest recovery in operating conditions on the back of domestic demand, though the improvement is dampened by aggressive price hikes and constricted supply chains.

Domestic demand steps up: Internal demand was the primary driver of growth in April. While regional war-jitters caused some clients to hesitate, domestic orders surged as local customers returned to the market after a volatile March. The new orders sub-index recovered to 51.5 from March’s 45.2, helping offset the sharpest decline in export orders in the survey’s 17-year history, Reuters reported.

While the recovery is a positive sign, the big jump is partly a “temporary re-boost” linked to the monthlong ceasefire, MENA economist Hamzeh Al Gaaod tells EnterpriseAM, as the pause in hostilities has allowed flight activity and general business operations to resume. Al Gaaod says the current PMI level still reflects a broader slowing trend that began before the conflict, rather than a complete return of customer confidence.

The caveat: One factor propping up the numbers is Saudi Arabia’s role as a regional hub during the crisis, as significant trade flows have been rerouted through the Kingdom to supply other GCC nations that were cut off due to the closure of the Strait of Hormuz. While this logistical necessity has supported the PMI figure, Al Gaaod warns that it “doesn't really show the full picture of what a genuine reopening of Hormuz would look like,” serving instead as a “precursor” to a potential re-acceleration once regional tensions fully ease.

MEANWHILE- Businesses are grappling with a massive spike in costs. Input prices — driven by high raw-material and freight expenses — surged at the fastest rate since the survey began in 2009, as Middle East shipping routes remain under duress. To protect their margins, companies raised their selling prices at a near-record pace.

And supply chain bottlenecks are driving a stock build-up and local pivot: Saudi firms proactively increased inventories to hedge against shipping disruptions, despite a second consecutive month of falling purchases. Longer delivery times pushed a shift to local suppliers, while stockpiling helped firms work through backlogs and return to overall growth in business activity.

Sentiment for the year ahead improved: Despite the dual pressures of regional instability and rising costs, Saudi businesses expect activity to strengthen over the next 12 months, buoyed by the Kingdom's pipeline of domestic infrastructure projects, according to Riyad Bank’s Chief Economist Naif Al Ghaith.