Construction index crosses back into growth territory in May

Saudi Arabia’s construction sector is back in growth territory. The Al Rajhi Capital Saudi Construction Index (pdf) climbed to 51.2 in May from 48.5 in April, back above the 50 threshold that separates growth from contraction, and a three-month high. Firms pointed to better regional stability as the trigger, with work resuming on existing sites and new projects restarting.

SOUND SMART- The Al Rajhi Capital Saudi Construction Index is a new monthly S&P Global survey of 200 construction firms, tracking m-o-m changes in total construction volume across residential, non-residential structures, and infrastructure subsectors, alongside new orders, output expectations, hiring trends, input costs, and supplier delivery times. Data collection began in January.

Residential work led the way with the strongest sub-sector reading at 53.8 — its best since January — driven by housing demand and a recovery in client confidence that Sultan Altowaim, head of research at Al Rajhi Capital, linked to improving mortgage data. Non-residential structures also expanded (50.5), supported by commercial and industrial project pipelines.

Infrastructure was the one soft spot, dipping into contraction at 45.7 for the first time since the survey launched in January.

New orders are back, just about: Total new business intakes returned to growth in May, reversing a consecutive two-month slide. While still slower than the January-February pace, firms flagged a recovery in demand and sales pipelines from diversification projects and urbanization.

The cost picture is less rosy. Input cost inflation hit its highest since January, with firms citing higher transportation bills, pricier raw material costs, and lingering shipping delays on imports, even as supplier delivery times improved for the first time in four months.

The mood is cautiously positive, though: Nearly 30% of surveyed construction firms expect activity to strengthen over the next 12 months, against 16% predicting a decline.