How KSA + Egypt’s non-oil private sectors fared in March: Purchasing manager indices (PMI) tracking non-energy sectors in the two countries saw slowdowns across the board in March, with Saudi Arabia holding above the 50.0 mark threshold — but at a slower rate — while Egypt’s two-month stint in expansion territory came to an end.

REMEMBER- The all-important 50.0 mark is the threshold separating contraction from growth. Anything above 50 denotes expansion, while anything below indicates contraction.

First up, Saudi Arabia: Non-oil business activity in the Kingdom slowed its expansion slightly in March on the back of strong customer sales and increased levels of business activity, according to the Riyad Bank Saudi Arabia PMI (pdf). The seasonally adjusted headline figure came in at 58.1 in March, dipping down from the reading of 58.4 in February, as new business growth continued to increase, but did so as its slowest rate since October 2024.

The new orders subindex fell to 63.2 down from 65.4 in February, according to data seen by Reuters. Although the rate of growth in new orders has slowed from the 14-year high seen in January, non-oil firms experienced a “robust demand environment” at the end of the quarter, driven by enhanced marketing efforts, lower selling prices, and general improvements to economic conditions. Similarly, new orders from foreign markets also continued to rise, albeit at a slower rate.

Firms’ purchasing activity continued to rise, with businesses reporting another sharp rise in their total inventories — the fourth largest expansion recorded in series history. Meanwhile, input cost inflation fell to its lowest level in over four years, with firms seeing markedly weaker increases in purchasing prices. This, coupled with competition across the non-oil economy led to a drop in selling prices — the first such decline in six months.

Employment growth remained largely unchanged from February’s 16-month high, boosted by the increased sales volumes, with firms emphasizing “efforts to build their sales teams and overall capacity.” The first quarter of the year marks “the fastest pace of jobs growth since the third quarter of 2012,” according to survey data. “Rising employment rates are a direct benefit of businesses scaling up operations to meet demand. By providing more job opportunities, Saudi Arabia aims to nurture a skilled and ambitious workforce, reducing the unemployment rate to 7% for Saudi nationals”, Riyad Bank Chief Economist Naif Al Ghaith said.

REMEMBER-The UAE’s non-oil activity saw a “mild slowdown” in growth in March, with business activity continuing to improve, but at the slowest pace recorded since September of last year, according to S&P Global UAE PMI (pdf). The headline figure reached 54.0 during the month, down from 55.0 in February.

What the readings could mean for Gulf markets: “Looking ahead, the prospects for Gulf non-oil sectors have weakened in light of recent developments,” Capital Economics’ James Swanston wrote in a note seen by EnterpriseAM. “Worries over global demand and, in turn, for oil, coupled with OPEC+’s surprise hike announced last week has caused oil prices to collapse – Brent crude is now trading at USD 63 pb, a near 20% fall since the end of March. We highlighted that this now puts oil below fiscal and external breakeven prices in much of the Gulf, particularly in Saudi Arabia, and will likely see twin budget and current account deficits open up,” Swanston writes.

In Egypt, the non-oil private sector’s two-month stint in expansion territory came to an end, with declining demand and weaker output helping drive the trend, according to S&P Global’s latest Purchasing Managers Index report (pdf). Egypt’s headline figure fell 0.9 percentage points to 49.2 in March, down from 50.1 in February — however, despite the fall, the reading “remained higher than its long-run trend, suggesting that businesses are still in a good overall position,” Owen said.

New orders from both local and international sources fell, leading to local companies to trim spending and reduce operations. Companies also reported a drop in purchasing activity — decreasing for the first time in four months — alongside a reduction in workforce headcounts.

Input prices rose but at their slowest rate in 58 months, which may suggest that the increasing stability of the EGP against the greenback is helping ease inflationary pressures. The country’s private sector responded to the deceleration of input price inflation by raising prices at the lowest level during the quarter at the slowest pace in four years.

Businesses are unsure of what lies ahead, with companies’ expected outputs falling to some of the lowest levels reported by the index, which Owen attributes to an unpredictable future ahead for the local economy despite an improved inflation outlook.

All signs point towards a rate cut: “Following the sharp drop in inflation in February, the input and output price components decreased to multi-year lows and supports our view that the central bank will cut interest rates next week,” Swanston wrote in the note.

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