Saudi Arabia Non-Oil Sector Growth Accelerates as PMI Reaches 56.3

Saudi Arabia has been making significant strides in diversifying its economy, particularly in the non-oil sector. This effort is part of the country’s Vision 2030 initiative, which aims to reduce reliance on oil revenues and foster sustainable economic growth. Recent data indicates that the non-oil private sector in Saudi Arabia is experiencing a robust expansion, as evidenced by the latest Purchasing Managers’ Index (PMI) report.

In September, the Riyad Bank Saudi Arabia PMI, compiled by S&P Global, recorded a notable increase, rising to 56.3 from 54.8 in August. A PMI reading above 50 signifies growth, while a reading below 50 indicates contraction. This latest figure marks the highest level in four months, showcasing a significant acceleration in business activity within the non-oil sector. The increase in the PMI is largely attributed to improved sales momentum and a rise in new orders, reflecting a positive shift in market conditions.

Naif Al-Ghaith, the chief economist at Riyad Bank, highlighted that the uptick in the PMI is a clear indication of the non-oil private sector's expanding activity. He stated, "The rise in Saudi Arabia’s PMI to 56.3 shows the highest level in four months, highlighting a notable acceleration in non-oil private sector growth." This growth is crucial as it helps to reduce the Kingdom's dependence on oil revenues, especially in light of current crude production cuts and declining global oil prices.

To stabilize the oil market, Saudi Arabia has implemented a reduction in oil output by 500,000 barrels per day since April 2023, a cut that has been extended until December 2024. Al-Ghaith emphasized the importance of the non-oil sector's performance, stating, "As oil revenues come under pressure, the robust performance of the non-oil private sector serves as a buffer, helping to mitigate the potential impact on the country’s economic health." This diversification of revenue streams is essential for maintaining growth amid the fluctuations of the oil market.

The report also noted that improved business conditions have led to employment growth, although companies are facing challenges in finding skilled workers. Despite the strengthening demand, there are concerns regarding competitive pressures, which have dampened future activity expectations. Interestingly, higher competition has resulted in a reduction in selling prices for the third consecutive month, even as business costs continue to rise.

Al-Ghaith pointed out that rising output levels not only enhance the competitiveness of Saudi businesses but also support developments aimed at increasing private sector participation in the economy. He remarked, "Rising output levels not only enhance the competitiveness of Saudi businesses but also drive forward developments aimed at expanding private sector participation in the economy." This shift is vital for creating a more stable foundation for long-term growth, making the economy less vulnerable to the volatility of oil prices.

Overall, the growth in the non-oil sector is widespread across various segments of the economy, with many businesses reporting higher demand and new project approvals. Al-Ghaith concluded, "By expanding output across key non-oil industries, Saudi Arabia is better positioned to navigate the challenges of oil market fluctuations, ensuring a more sustainable and diversified economic future." This positive trend not only reflects the resilience of the Saudi economy but also underscores the importance of continued efforts towards diversification and sustainable growth.