Responding to heightened demand, Saudi Arabia’s non-oil private sector saw significant purchasing acceleration in April, indicating robust economic activity.
In the second quarter of 2024, the non-oil private sector of Saudi Arabia continued its upward trajectory, powered by vigorous domestic demand which prompted a marked escalation in business activities. Despite marginal reductions in the workforce due to financial prudence, the softened input cost inflation, a nine-month low, is fostering optimism in the sector.
The seasonally adjusted S&P Global Saudi Arabia Purchasing Managers’ Index (PMI) for April remained at a constant 57.0, mirroring the previous month’s figures, and signaling a continued improvement in the non-oil private sector’s operational conditions.
This uptrend suggests a potential rise in the non-oil GDP, possibly surpassing the 4.5 percent threshold for the current year. The surge in new orders and inventory build-up reflects a proactive approach to the increasing market demand,
said Naif Al Ghaith, chief economist at Riyad Bank.
Business activity expands
Since 2020, Saudi Arabia’s non-oil private sector has experienced a consistent increase in new orders, a trend that persisted into April, driven by competitive prices, promotional efforts, investments, and an expanding client base, particularly within the domestic sphere. This led to a sharp rise in business activities as the second quarter commenced, with the wholesale and retail sectors recording the highest output growth.
To address the growing demand, the non-oil sector’s purchasing activities surged in April, with companies accumulating raw materials and other essential production items. Inventory levels hit a record high at the quarter’s onset, reflecting confidence in future demand and intentions for expansion.
Supplier performance
Suppliers improved their delivery times, albeit the rate of enhancement was the most modest in eight months. Backlogs of work increased for the first time in three months, indicating capacity strain, with the rate of backlog accumulation being the fastest seen in over four years, emphasizing the sustained demand.
Despite the positive market sentiment, non-oil private sector entities in Saudi Arabia slightly reduced their workforce for the first time in over two years in April, citing costs and cash flow as driving factors. Although there was a slight uptick in staff expenses, the overall input costs climbed at the gentlest pace since the previous July, granting some respite to businesses.
Even with the drop in employment numbers, there’s a discernible bump in employment-related expenses to motivate the workforce. This approach is designed to boost productivity and retain competent employees amid the flourishing economy,
Al Ghaith further noted.
Pricing strategies
With the increase in total operating expenses slowing down, non-oil private sector firms in Saudi Arabia took a more conservative stance on pricing in April. Some businesses offered discounts to boost their competitiveness. Output prices continued to rise for the sixth consecutive month, although the increment was minimal.