STOCK RIYADH SAUDI SKYLINE
The Saudi government has been fast-tracking development activities and is also picking up steam in divestments. Image Credit: Reuters

Dubai: With oil at $100 and over, Saudi economy and its businesses are feeling the buzz, with the Kingdom’s PMI (Purchasing Managers Index) recording a robust 55.7 for a second consecutive month in May.

The PMI reading gives an indication of private sector activity in a country and by extension, that of the wider economy’s health. Anything over 50 indicates a solid performance.

Saudi Arabia’s ‘business conditions have now strengthened in each of the past 21 months’, indicating that prevailing oil prices are fuelling a full-fledged growth from Covid times, according to S&P Global, which provides the PMI reading. Businesses will also take a lot of positive from another trend that’s noticeable.

“Customer demand appears to be responding well to price mark-ups so far, with another marked increase in new orders recorded in May, leading to a robust expansion in business activity,” said David Owen, Economist at S&P Global Market Intelligence.

But businesses should not let themselves be carried away by strong April and May returns. Client acceptance of higher prices ‘may start to change as global inflation builds and household costs rise, particularly as global supply chains remain under considerable pressure from lockdowns in China and the Russia-Ukraine war,” Owen added.

11%

Percentage of Saudi businesses expecting continued growth through the rest of 2022, according to S&P Global's PMI poll for May

That cautionary mood

Businesses, at least some of them, are already mulling the chances of inflationary pressures being a drag on their prospects. “Despite picking up for the first time in three months, businesses continued to report only a mild degree of confidence in future activity, amid concerns that inflation could hinder demand in global and domestic markets,” S&P reports.

Amidst more orders coming in, non-oil firms had increases in fuel, material and freight prices in May. Input costs rose at the second-fastest rate in 18 months, ‘slower only than the uptick in March’.

“The outlook for business activity in the year ahead picked up for the first time in three months in May,” S&P Global reports. “That said, it remained weak by historical standards with just 11 per cent of firms expecting growth, amid continued uncertainty over global inflation, the pandemic and the war in Ukraine.”

Export wins, but...
Saudi firms saw improvements in export orders for a third month running, 'albeit one that was softer than for
domestic sales'.