Demand fuels price rises in Saudi Arabia’s non-oil sector

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• New business and sales soar
• Costs passed on to customers
• Wages rise to retain talent

A surge in demand towards the end of the year saw non-oil companies in Saudi Arabia increase prices for the second month in a row in December.

Manufacturing was the standout industry.

“A number of firms signalled that increased demand momentum gave them greater confidence to pass on higher input costs to customers,” according to the Riyad Bank Saudi Arabia Purchasing Managers’ Index (PMI).

New business in the kingdom increased at the sharpest rate since June 2023.

Sales growth was at its quickest in nine years “as firms commented on new clients and strengthening demand conditions”.

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The headline PMI registered 57.5 for the second consecutive month and has remained above 50.0 for more than three years. A figure below 50 indicates the sector is contracting.

The index incorporates five metrics: new orders, output, employment, suppliers’ delivery times and stocks of purchases.

Despite the increased confidence in business conditions, the rate of employment growth in the non-oil private sector eased further after hitting a nine-year record in October.

“The overall rise in employment was only modest,” the survey noted.

At the same time, however, Naif Al-Ghaith, chief economist at Riyad Bank, revealed that efforts to attract and retain talent had resulted in an “upward trend” for wages.

At the setting of the kingdom’s budget last month the finance ministry said it anticipated 4.4 percent real GDP growth this year, compared to 0.03 percent in 2023.

Inflation is expected to decline to 2.2 percent in 2024, compared to 2.6 percent last year.

Non-oil revenues in Saudi Arabia’s budget have increased at a compound average growth rate of 14 percent over the past 10 years and now account for 30 to 40 percent of total government revenues, according to Andrew Cunningham, a consultant on risk and governance in Middle East and sharia-compliant banking systems.