Stock - Riyadh skyline / Saudi economy / Saudi Arabia
Construction sector activity remains the biggest growth engine for the Saudi private sector. New project launches and tenders is keeping that pipeline busy. Image Credit: AFP

Dubai: Saudi businesses saw month-on-month sales growth drop to its lowest point in the last two years during May - but this could be a minor blip as overall demand remains strong and new orders keep coming in. This is according to the latest PMI (Purchasing Managers Index) data from Riyad Bank.

What businesses should, however, be concerned about is the high inventory they are carrying.

“The rise in inventory levels and prices has prompted firms to adjust their purchasing behaviors to align with their sales strategies,” said Naif Al-Ghaith, Chief Economist at Riyad Bank.

“This cautious approach indicates a strategic response to the changing market dynamics and the need to maintain a sustainable business model.”

The best-performing sector was construction, with the Saudi market seeing more projects coming through and many of them now entering the tendering or construction phase.

What does the May PMI say

The Saudi PMI score – which is a composite of business orders, capex plans, etc. - was 56.4 in May, a slight drop from April’s 57. (Any score over 50 shows solid to high business expansion.)

“That said, the reading was the second-lowest for 22 months, higher only than January's recent nadir,” says the Riyad Bank report.

Higher job intake

On the hiring side, there continues to be more progress, as Saudi Arabia opens up key sectors.

Private sector firms raised their employment levels in May, helping to offset the 'first decline in over two years in April'. Staffing growth was 'mostly linked' to higher workloads and efforts to reduce outstanding orders, which duly fell slightly.

"This growth has necessitated an increase in employment to meet the growing demand for goods and services," said Al-Ghaith. “The Purchasing Managers' Index (PMI) for Saudi Arabia's non-oil economy shows a positive trend, driven by increasing demand as evidenced by the rise in new orders.

"However, the surge in demand has also led to price pressures impacting input prices and staff costs, although the increase in output prices has been observed at a slower pace.

"This balancing act reflects the challenges faced by businesses in managing costs while trying to capitalize on the expanding market."

Competition is eating into margins

Across major sectors, businesses keep pointing to the increased competition, which adds to the difficulties in gaining new customer wins.

More to follow...