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Saudi Arabia’s non-oil business activity hits eight-year high

People, Person, Man Reuters/Faisal Al Nasser
Improving economic conditions in Saudi Arabia are driving confidence for future business activity over the next 12 months

Saudi Arabia’s non-oil business sector activity soared to its highest level in eight years in February, based on a strong increase in demand and an optimistic economic outlook.

The seasonally adjusted Riyad Bank Saudi Arabia Purchasing Managers’ Index jumped to 59.8 in February, from 58.2 the previous month, the fastest rate of increase since March 2015.

A substantial rise in new orders indicated improved economic conditions for businesses. The new orders sub-index rose to 68.7 last month – the highest reading in more than eight years – from 65.3 in January, continuing a recent trend upwards on strong demand momentum.

As a result the output sub-index also recorded a strong increase, at 65.6 in February from 63.6 in the previous month, leading to further expansion in employment and purchasing.

“Despite tighter monetary conditions, demand and supply balance seemed robust and spurred by the ongoing projects around the kingdom, causing sharper uplifts in output and new orders for firms, as well as rising demand for labour,” Riyad Bank’s chief economist Naif Al-Ghaith said.

However, inflationary pressures are pushing costs higher for firms. Saudi inflation rose to 3.4 percent in January, slightly up from the previous month.

“Prices have responded to the surge in demand, with the increase in input costs evident especially in the services and construction sectors,” Al-Ghaith said, adding he expects cost pressures and the current elevated demand to continue in the medium term.

Improving economic conditions are driving confidence for future business activity over the next 12 months, the survey said.