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Saudi private sector activity makes up for exports dip

Tourism continues to rise in Saudi Arabia, aiding employment opportunities Reuters/Mohammed Benmansour
Tourism continues to rise in Saudi Arabia, aiding employment opportunities
  • Non-oil companies record fastest rate of orders in 8 years
  • Employment rises for 13th consecutive month
  • Data from the latest PMI

New orders for non-oil private sector companies in Saudi Arabia rose at their fastest rate for over eight years in April.

The latest data from the Riyad Bank Saudi Arabia Purchasing Managers’ Index (PMI) showed stronger domestic demand more than offset a slight drop in export sales, which fell last month for the first time in a year. 

Job creation also continued in April, as signalled by a rise in employment for the 13th month in a row.

Unemployment in Saudi Arabia fell to 8 percent last year, its lowest level for six years, as the number of Saudi nationals working in the private sector increased by 15 percent from 1.9 million in 2021 to 2.2 million in 2022. 

“April PMI data highlighted another steep expansion of business activity across the kingdom’s non-oil private sector economy,” Naif Al-Ghaith, chief economist at Riyad Bank, said.

“We have witnessed rising tourism numbers and higher consumer spending, alongside new business opportunities related to major infrastructure projects. 

“Moreover, long-term business expansion plans have made the rate of job creation slightly stronger than seen on average in the first quarter of 2023.”

The seasonally adjusted PMI was 59.6 in April, up from 58.7 in March and only fractionally lower than the eight-year peak seen in February (59.8). Improving overall business conditions have been recorded in each month since September 2020. 

A sharp and accelerated increase in new business volumes was the main driver of the rise, with survey respondents commenting on a range of positive factors supporting customer demand, including tourism growth and a rise in consumer spending.

The Arab world’s largest economy has witnessed a 121 percent increase from pre-pandemic international tourism levels and had 93.5 million visits in 2022.

The kingdom will see the completion of 315,000 hotel keys by 2030 at a cost of nearly $38 billion, according to Knight Frank, as the country continues its diversification strategy.

Across the non-oil private sector, April data indicated another increase in purchase prices and staff wages although business expenses rose at the slowest pace for three months. 

“We have observed growing cost pressures as both input costs and staff wages have been rising again,” Al-Ghaith said.

“The recent weakness in the US dollar has resulted in a costlier import of raw materials, while efforts to boost staff retention and business performance resulted in another upturn in average wages. 

“Consequently, businesses needed to pass on higher overheads to clients while squeezing margins due to competitive market conditions during this time of the year.”

The latest survey indicated that businesses in Saudi Arabia remain upbeat about their growth prospects for the year ahead. 

The degree of optimism slipped to a four-month low, but was still well above the average seen in 2022. 

“Positive sentiment reflected strong sales pipelines, alongside confidence regarding domestic business conditions and the long term impact of government economic policy objectives,” Al-Ghaith said.

The IMF’s latest World Economic Outlook has predicted headline GDP growth in Saudi Arabia will drop to 3.1 percent from record levels last year.