Saudi Arabia's non-oil private sector growth accelerates slightly in August-PMI

Saudi Arabia's non-oil private sector demonstrated stable growth in August, with the Riyad Bank Purchasing Managers' Index (PMI) rising slightly to 56.4 from 56.3 in July, comfortably above the 50.0 growth threshold. This expansion was primarily driven by accelerating new orders, including a four-month high in export order growth, and continued employment gains, leading to improved business confidence from a 12-month low. However, firms faced rising input costs and increased selling prices for the third consecutive month, reflecting persistent inflationary pressures.

Analysis

Saudi Arabia's non-oil private sector maintained a steady growth trajectory in August, with the Riyad Bank Purchasing Managers' Index (PMI) inching up to 56.4 from 56.3 in July. This reading, remaining firmly above the 50.0 expansion threshold, was underpinned by strengthening demand conditions. Specifically, the new orders subindex accelerated to 60.1, bolstered by a rebound in new export orders which posted their fastest upturn in four months, driven by GCC-region collaborations. This positive demand signal prompted firms to increase inventories to a four-month high. However, significant inflationary pressures persist, as evidenced by a sharp rise in input costs that led firms to increase their selling prices for the third consecutive month. Despite these cost headwinds, business confidence improved from a 12-month low, suggesting a positive outlook for future output among private sector firms, even as the overall pace of activity growth has eased from highs seen earlier in the year.

Key Decisions for Investors

• The sustained strength in the non-oil PMI, driven by robust new orders, supports a continued constructive outlook on the Saudi domestic economy, favoring exposure to sectors sensitive to local business and consumer spending.
• Investors should closely monitor the trend in input costs and selling prices, as persistent inflationary pressures could eventually compress corporate margins or dampen consumer demand, posing a risk to the current growth narrative.
• The rebound in export orders suggests potential opportunities in Saudi companies with strong trade links within the Gulf Cooperation Council, as regional collaboration appears to be a key growth driver.
• Given that business confidence is recovering from a 12-month low, investors may consider this an opportune moment to re-evaluate positions in Saudi equities, as sentiment may be turning more positive despite the noted cost pressures.