Saudi non-oil economy holds up even as rate hikes start to bite
A purchasing managers’ index for Saudi Arabia stood at 57.7, down from 59.6 in June
Riyadh: Business growth in Saudi Arabia decelerated in July as rising interest rates started catching up with the kingdom’s non-oil industries.
A purchasing managers’ index for Saudi Arabia stood at 57.7, down from 59.6 in June, according to Riyad Bank. While still far above the 50-mark separating growth from contraction, the slowdown was mainly driven by weaker growth for new orders.
“The effects from tighter monetary conditions have started to be mildly felt across the kingdom’s private sector,” said Naif Al-Ghaith, chief economist at Riyad Bank. “To some extent, the slowdown in business activity was expected and owed to business cycle dynamics and ongoing market repricing adjustments.”
Intense competition led to price discounting during the month. Still, business activity growth held close to levels seen in June.
The Saudi riyal is pegged to the US dollar and the kingdom’s central bank has to follow the Fed’s decisions closely, even though Saudi inflation has been well below that of the US in the past two years. The US Federal Reserve has hiked interest rates to lower inflation, with its latest move of 25 basis points last month.
The Saudi economy grew almost 9 per cent in 2022, faster than that of any other member of the Group of 20 and leading gross domestic product to surpass $1 trillion for the first time. Growth has slowed this year as oil prices and production have dropped, with some economists even forecasting a contraction.