Saudi non-oil sector hits four-month high on sentiment optimism and domestic demand

Saudi Arabia’s non-oil private sector closes 2Q on stronger footing: The Kingdom’s PMI rose to 53.3 in June, up from 52.8 in May and the highest reading in four months, according to Riyad Bank Saudi Arabia’s latest report (pdf). The jump signals continued recovery momentum heading into 2H, fueled by a rebound in domestic demand and improving business confidence. Still, the reading remains softer than the survey’s long-run historical 56.8 average.

Domestic demand drove the strongest growth in new orders since February. Firms reported a sharp acceleration in new business volumes in June, with project approvals, stronger domestic customer spending, and renewed sales activity. “New orders are up and we’ll be seeing more movement on the Vision 2030 revamp which happened this year, now that choke points are starting to re-open,” MENA economist Hamzeh Al Gaaod tells us.

The global market still offered little help: Foreign orders contracted steeply for the fourth month in a row, with firms citing ongoing regional logistics challenges and foreign competition as the primary constraints.

Businesses found faster ways to get their hands on supplies, turning to local sources and new routes to hit their best delivery speeds since February. Yet, purchasing activity remains calm as firms aren’t rushing to place new orders due to plenty of stock on hand, keeping buying activity quieter than usual.

MEANWHILE- June capped off the toughest quarter for costs in 15 years. Businesses are feeling the pinch from every angle — fuel prices, shipping costs, and supplier hikes linked to regional tensions have all surged. On top of that, companies had to dig deeper to cover rising staff salaries, leading to the second-highest output charges in six years, with nearly 22% of businesses raising their prices and only 8% reducing them.

Sentiment is at its highest since January: Business optimism climbed, with the future output index surging to the highest level since the beginning of the year. “The improvement in expectations points to growing confidence in the domestic business environment and suggests that companies increasingly anticipate favorable market conditions to support business activity over the coming month,” Riyad Bank Chief Economist Naif Al Ghaith said in the report