Stock - Riyadh skyline / Saudi skyline
Project activity continues to propel Saudi economy, whether that's within the major cities or out at the 'giga' destination sites. Image Credit: Bloomberg

Dubai: Strong oil and new orders continuing to flow in ensured Saudi Arabia’s non-oil private sector recorded a 25th successive month of growth during September. While dropping slightly from the August highs, last month’s numbers show the Kingdom’s economy cruising along quite comfortably, say the latest PMI data from S&P Global.

What will please businesses there would be the growth in output and new orders, all of which is happening against a backdrop of still high oil prices. (And oil could be heading higher if the tightening of production by OPEC bears out.)

“Both output and new orders rose at rates above their averages for their current 25-month growth sequences,” said David Owen, Economist at S&P Global Market Intelligence. “Confidence in the quality of goods and services provided meant firms expect to successfully convert into hard contract wins a high proportion of what is an extremely positive pipeline of new business.”

PMI reading

The Saudi PMI (Purchasing Managers Index) reading for September was 56.6, a slip from August’s charged 57.7 but still good enough. (The PMI reading is based on feedback from private sector participants on new orders won, output, etc. Any reading over 50 suggests the economy is in expansion.

Keep lid on prices

Saudi businesses for the most part made sure to keep their end-user prices in check. With that, ‘inflationary pressures appear to be constrained’, said Owen. "Saudi Arabia's non-oil private sector economy retained an impressive pace of growth during September, especially against the backdrop of increasingly challenging global economic conditions."

New jobs are happening
Businesses in Saudi are engaged in further recruitment, though growth was 'marginal and the weakest in the current six-month sequence'.

"Placing some restriction on growth in staffing levels was firms' ongoing ability to keep on top of workloads: backlogs of work fell for a fourth month in a row, and again at a solid rate," S&P Global notes.

Higher input costs

But non-oil businesses had another month of 'solid' inflation to deal with. "Purchasing cost inflation was the principal driver of higher overall operating expenses, amid reports that prices of globally sourced raw materials and oil-related products had again risen," says the S&P Global report. "Staffing expenses also increased, but only marginally and at the slowest rate since  June. Construction companies reported by far the biggest rises in costs in September."

The last part could prove particularly burdensome for contractors and project managers, with Saudi Arabia initiating a decades' worth of new builds. In a recent report, the real estate consultancy Knight Frank called the Kingdom the 'world's biggest construction site'.

Confidence remains in place
Saudi firms remain confident that production levels will continue to increase over the coming 12
months. "This was linked to expectations of a continuation of strong sales amid high enquiry levels and a strong pipeline of new work," says the S&P Global report. "That said, sentiment was a little lower and down to its weakest since May."