Saudi Arabia's non-oil private sector expanded at the fastest pace in four months during June, with the Purchasing Managers' Index climbing to 53.3 from 52.8 in May, according to the Riyad Bank PMI compiled by S&P Global. A reading above 50 indicates expansion.
Growth Driven by Domestic Demand
The PMI reading, the highest since February, signals a solid improvement in operating conditions at the end of the second quarter. Output remained strong, with approximately 18 percent of surveyed firms reporting higher production compared with just 2 percent noting declines. Growth was driven by project approvals, stronger customer demand, and renewed sales activity after earlier postponements.
New business volumes recorded their strongest growth since February, accelerating at a sharp pace. Firms cited a rebound in investor confidence and domestic customer spending, partly linked to improved sentiment regarding regional conflicts.
Export Weakness Persists
However, the domestic uplift contrasted with persistent weakness in exports. New orders from foreign customers contracted steeply for the fourth consecutive month, with respondents pointing to ongoing regional logistics challenges and intensified foreign competition.
Naif Al-Ghaith, chief economist at Riyad Bank, said: “Saudi Arabia’s non-oil economy maintained a solid expansion in June, with the PMI rising to 53.3 from 52.8 in May, reflecting an improvement in business conditions across the private sector. Stronger output and the fastest increase in new orders in four months suggest that business activity regained momentum toward the end of the second quarter.”
Business Optimism Strengthens
Optimism among non-oil firms strengthened markedly, with the Future Output Index reaching its highest level since January. Companies expressed hopes that anticipated improvements in market conditions and regional peace agreements would help resolve supply chain disruptions.
“The improvement in expectations points to growing confidence in the domestic business environment and suggests that companies increasingly anticipate favorable market conditions to support business activity over the coming months. This positive outlook reinforces expectations that non-oil growth will remain supported during the second half of the year,” added Al-Ghaith.
Employment and Price Pressures
Despite rising confidence and demand, employment levels were broadly unchanged in June, reflecting concerns over business expenses. Purchasing activity also remained subdued, with only modest growth in buying quantities and inventory accumulation, as firms reported sufficient stock levels. Backlogs of work declined for the first time in a year.
According to S&P Global, price pressures remained steep in June, marking the most pronounced quarter of cost inflation in 15 years. In response, firms raised output prices at the second-quickest pace in nearly six years, with 22 percent of businesses increasing charges compared with 8 percent reducing them.
Supply Chain Improvement
On a positive note, supply chain conditions showed signs of recovery. Supplier delivery times improved at the fastest rate since February as companies shifted toward local sourcing strategies and alternative supply routes.
“The pricing environment remained the principal challenge during June. Higher purchase prices and rising staff costs continued to place upward pressure on operating expenses, leading firms to increase selling prices further. While cost pressures remain elevated, businesses appear to be managing them without materially affecting activity or confidence,” said Al-Ghaith.
He concluded: “This reflects the underlying resilience of the non-oil economy and the ability of firms to balance profitability with sustained business expansion.”
