Riyadh: Growth in the Saudi Arabian non-oil private sector economy accelerated to the highest level in almost eight years in February, according to the latest PMI survey data. This comes as companies reported a substantial increase in demand linked to improving economic conditions. Firms also reported faster upturns in output, employment, and purchasing, while optimism toward the year ahead remained robust.
However, the strong improvement in demand had the added effect of pushing inflationary pressures higher.
The headline index rose to 59.8 in February, from 58.2 in January, to signal the fastest growth in non-oil private sector business conditions since March 2015. Any index reading above 50.0 indicates an improvement in the health of the non-oil sector.
New business inflows
The strong PMI reading was partly down to a sharp and accelerated increase in new business inflows. Over 42 per cent of surveyed companies indicated that new orders had risen over the latest survey period, and often attributed this to an improvement in market conditions. Panellists also noted that new projects, increased client numbers, and some price promotions had helped to boost sales. Export orders also increased at a sharp and quicker pace. Notably, total new orders rose to the greatest extent since September 2014.
“Despite tighter monetary conditions, demand, and supply balance seemed robust and spurred by the ongoing projects around the Kingdom, causing sharper uplifts in output and new orders for firms, as well as rising demand for labour,” said Naif Al Ghaith PhD, Chief Economist at Riyad Bank. “This was met by a strong improvement in supplier performance and a sharp reduction in lead times.”
The strong growth in new orders led businesses to make robust advancements in output, which rose to the greatest degree in seven-and-a-half years. The outlook for activity over the next 12 months was also strong - despite slipping from January’s two-year high, it remained above the average recorded in 2022.
Increase in labour capacity
Job numbers rose at the second-fastest rate in five years, as firms often commented on efforts to fill vacancies in order to meet future demand. Increased labour capacity meant that firms continued to finalise orders on time and cut their backlogs, though the rate of decrease was the softest for eight months. At the same time, input purchases rose sharply and at the fastest pace for three months, while firms expanded their inventories to a greater degree than in January.
Faster deliveries
The latest survey results suggested that suppliers tended to respond positively to requests for faster deliveries in February. Lead times improved solidly and at the strongest rate for three months. On the negative side, greater input demand led some vendors to raise their prices, leading to a solid increase in purchasing costs.
The rise in purchase costs contributed to a faster uplift in overall cost pressures, as inflation picked up to the highest level since November last year. The uplift was partly driven by an increase in staff wages for the fourth month running. As a result, businesses lifted their output charges in an effort to pass rising expenses onto clients. After falling to an 11-month low in January, output price inflation accelerated markedly and was solid overall.
