Saudi’s non-oil sector gathers pace in May on domestic demand, supply resilience

Saudi Arabia’s non-oil private sector gathered further momentum in May, with the Kingdom’s Purchasing Managers’ Index (PMI) climbing to 52.8, up from April’s 51.5, according to the Riyad Bank Saudi Arabia latest report (pdf). The jump signals a steady recovery since March’s slump following the eruption of the US-Iran war. While the reading sits comfortably above the neutral 50.0 threshold, fueled by reviving local demand and stabilizing supply networks, export hurdles and high costs kept the index below its long-term historical average of 56.8.

A modest demand growth still drove higher output and new orders: As business conditions normalized, companies dusted off delayed contracts and restarted frozen projects, pushing output levels to a three-month high, according to Riyad Bank’s Chief Economist Naif Al Ghaith. New orders also rode the same wave, rising to 52.0 in May, compared to April's 51.5 reading, but they remain below their long-run average, Reuters reports.

The global market offered little help: Foreign orders contracted sharply for the third month in a row, choked off by ongoing shipping bottlenecks, high freight costs, and regional conflict.

Logistics stabilization pushed inventory rebuild: Average supplier delivery times shortened in May for the first time in three months. Firms went on a buying spree sensing a window of stability, boosting purchasing activity for the first time since February to rebuild their inventories and hedge against future disruptions.

Staffing levels returned to growth in May in response to backlogs, which inched up for the eleventh consecutive month. However, the hiring push was cautious compared to the start of the year. “Demand is recovering, but uncertainty and a relatively low pace of growth is constraining employment,” Mohamed Abu Basha, Head of Macroeconomic Analysis at EFG Hermes, said in a note seen by EnterpriseAM.

MEANWHILE- Price pressures eased slightly from April’s record high, but they remain painfully high. Companies are still facing steep bills for raw materials, supplier charges, and transport. On the bright side, wage inflation took a minor breather from its March peak. Companies held onto their pricing power, passing a heavy chunk of these expenses directly onto consumers and keeping inflation near historic highs.

Sentiment remains resilient: Saudi businesses expect the non-oil economy to sustain its upward momentum through 2026, driven by better domestic demand, stabilized supply chains, controlled inflation, strong government investment, and robust trade, Al Ghaith notes.