In January, Saudi Arabia’s non-oil private sector exhibited a robust improvement, marked by a surge in business activity and new orders, as captured by the economic tracker, the Purchasing Managers’ Index (PMI). The PMI, which stood at 55.4, signals economic expansion, reflecting the sector’s resilience despite facing a slight decline from December’s 57.5. This decrease is attributed to a softer expansion pace, pressured by inflation and rising purchasing costs, according to the Riyad Bank Saudi Arabia PMI report by S&P Global. Chief Economist at Riyad Bank, Naif Al-Ghaith, highlighted the sustained growth of the non-oil economy despite challenges like increased costs and interest rates, underscoring the Kingdom’s efforts towards economic diversification.
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The report sheds light on the rising purchasing costs, which have been pushed upward by inflationary pressures due to higher demand for inputs, escalating material prices, and heightened supply chain risks. Despite these challenges, competitive dynamics have led companies to absorb these cost pressures instead of passing them on to consumers, a strategy aimed at retaining market share in a competitive landscape. This approach indicates a significant shift in how businesses manage costs, focusing on market share retention over immediate profit margins. Additionally, the report attributes a sharp increase in purchase prices—the most significant since May 2012—to growing shipping costs, influenced by supply chain risks amid the Red Sea crisis, alongside a notable rise in staff costs leading to the highest input price inflation since August 2020.
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The economic analysis further reveals that companies have become more cautious in their procurement activities due to lessened demand, leading to the slowest growth in purchasing activities in eight months. Despite a modest increase in staffing, there has been an accumulation of backlogs of work within the non-oil sector, partly linked to a surge in the construction sector. This expansion, associated with ongoing infrastructure projects and real estate development, not only highlights economic growth but also suggests a buoyant outlook for the construction industry in Saudi Arabia. According to Al-Ghaith, this growth trajectory indicates a period of sustained expansion and investment in the sector, reflecting the broader economic resilience and diversification efforts of the Kingdom.