Demand lifts Saudi’s non-oil private sector growth to a seven-month high

With oil under pressure from the war, Saudi Arabia is leaning harder on its non-oil economy, and in September, that economy delivered. The Riyad Bank PMI (pdf) rose to 55.3 from 53.8 in August, a sixth straight month of growth and its strongest reading since February. The lift came largely from demand, with new orders far outpacing what firms actually produced. The index remains just below the survey’s long-run average of 56.8.

The strength surprised economists. “It’s a surprisingly strong figure, matching the UAE,” Khalij Economics Director Justin Alexander tells us. “It indicates that despite the disruptions, domestic demand remains strong.”

He sees some war-delayed spending feeding the rebound. “Potentially some investments and purchases that were delayed during the first six months of the war, waiting for it to be over, have moved ahead anyway, boosting activity.”

The demand side is firing across the board. New orders rose at their fastest since February, back close to their historical norm, which Riyad Bank puts down to demand recovering from the mid-year dip, though the gains came entirely from domestic customers. Firms hired more — specifically in sales and technical staff for new investments — stepped up input buying to a seven-month high, and took orders faster than they could clear them, lifting backlogs for the first time since May. Riyad Bank Chief Economist Naif Al Ghaith’s read is that firms are adding capacity because they expect the demand to hold, and he calls the jump in orders a positive signal for activity in the months ahead.

The strain sits on the supply and external side. Output still grew, but at its weakest pace in five months, with firms pointing to the same geopolitical uncertainty that has clouded the outlook. Export orders shrank for a seventh month. Firms also grew more downbeat about the year ahead, blaming regional tensions and the shipping delays that left supplier lead times barely moving.

Prices are the other warning light. Material and transport bills rose again, though overall cost pressure eased slightly. Even so, firms raised their own selling prices at the second-fastest pace in more than six years.