Non-oil private sector activity grows at slowest pace since January 2022

Non-oil business activity remained in growth territory last month — but expanded at its slowest pace in two and a half years, according to the Riyad Bank Saudi Arabia PMI (pdf). The headline PMI figure came in at 55.0 in June from 56.4 in May driven by higher output levels despite a drop in new orders, input purchases, and employment. It remains well above the 50.0 threshold that separates growth from contraction.

New orders took a hit as demand softened in the Kingdom. Intake rates were partially buoyed by a strong boost to export sales, which jumped up at the fastest rate recorded this year. The subindex settled at 56.0 down from 59.5 the previous month, Reuters reported. June saw businesses’ reduce their purchasing activity, following a period of unparalleled inventory expansion in recent months, resulting in purchases growing at its weakest level since September 2021.

Output increased on the back of existing order books, cutting down backlog volumes in the Kingdom’s non-oil sector. Businesses reported a rise in their employment numbers, yet rates were “only modest and milder than in May”, tapered by wage pressures forcing constraints onto operational costs. Delivery speed continued to improve. Inflation declined, yet, overall input costs increased at their quickest pace in the last four months.

Optimistic despite the slowdown in growth: “Looking at the second quarter as a whole, the growth figures for Q2 still indicate a positive outlook for non-oil GDP in Saudi Arabia, with expectations of growth exceeding 3%,” Riyad Bank Chief Economist Naif Al-Ghaith is quoted as saying in the report.

REFRESHER- Non-oil growth is central to the Kingdom’s diversification strategy designed to reduce its reliance on oil revenues. The World Bank — and more recently Riyad Capital — expect the local non-oil economy to grow a strong 4.8% this year, up from 4.4% in 2023. Meanwhile, the government is gunning for a non-oil GDP of 4.5-5.0% in 2024.

FROM THE REGION-

Egypt’s PMI hit its highest level in three years at 49.9 in June (pdf) from 49.6 in May;

The UAE’s PMI slipped to 54.6 in June (pdf) from 55.3 in May;

Qatar’s PMI rose to a 23-month high of 55.9 in June (pdf) up from 53.6 in May.

Kuwait’s PMI inched down to 51.6 in June (pdf) from 52.4 in May;