Saudi Arabia’s non-oil economy improves, but Iran war continues to weigh on growth

By Staff Writer

An improvement in operating conditions has given Saudi Arabia’s non-oil economy a near two-point boost in September’s Purchasing Manager’s Index (PMI), but the Iran war continues to weigh on business sentiment with activity growth easing to a five-month low.

The Riyadh Bank PMI climbed to 55.3 in September from August’s 53.8, signalling the strongest rate of improvement since February driven by a marked rise in new order growth despite a concurrent softening in output growth.

The recovery has largely been attributed to the domestic market, with orders from foreign clients decreasing for the seventh consecutive month as companies combatted the negative impact of supply chain disruptions, with the Strait of Hormuz and the Bab al-Mandab Strait facing repeated attacks.

Supply disruptions persisted during September, with delivery times improving only marginally.

An escalation in geopolitical tensions in the kingdom in recent weeks have further contributed to a slower rate of activity growth in September, as well as a drop in confidence about future output, the survey noted.

There were also reports of sharp increases in material and transport costs, leading to a “robust increase” in selling prices.

Growth in purchasing activity also gained momentum during September. “The September results are broadly consistent with the wider picture of the Saudi economy, where domestic consumption, investment activity, government and PIF-related projects, and continued credit availability remain important supports for non-oil activity,” Naif Al-Ghaith, Chief Economist at Riyad Bank, said.

Employment opportunities in the kingdom strengthened in the last month as firms recruited sales, technical staff.

“As new orders strengthened, non-oil companies increased hiring at a solid pace, with firms specifically reporting the expansion of sales teams and technical staff to support new investments. This is important because the increase in employment appears to be associated not only with current demand but also with businesses expanding their productive capacity,” Al-Ghaith added.

(Writing by Bindu Rai, editing by Seban Scaria)

bindu.rai@lseg.com