Saudi Arabia's non-oil sector growth quickens in June on strong demand, PMI shows

Saudi Arabia's non-oil private sector activity accelerated in June, with the Riyad Bank PMI rising to a three-month high of 57.2, driven by robust domestic demand and a surge in hiring, the fastest rate since May 2011. New order growth also quickened to a four-month high. While firms faced sharp increases in input costs, leading to the strongest output price rise in 18 months, optimism for future activity reached a two-year high, buoyed by resilient domestic conditions and government-led projects, aligning with the IMF's recently raised 2025 GDP growth forecast for the Kingdom.

Analysis

Saudi Arabia's non-oil private sector demonstrated a significant acceleration in June, with the Riyad Bank PMI reaching a three-month high of 57.2, up from 55.8 in May. This expansion is underpinned by robust domestic fundamentals, as the new orders subindex climbed to a four-month high of 64.3, driven primarily by local sales while export growth remained marginal. A particularly strong signal of economic momentum is the labor market, where firms increased hiring at the fastest rate since May 2011 to manage rising workloads. Despite facing sharp input price increases, businesses exhibited considerable pricing power, raising output prices at the most rapid pace in 18 months. This resilience has fueled strong optimism, with the Future Output Index reaching a two-year high, a sentiment that aligns with the IMF's recent upward revision of its 2025 GDP growth forecast for the Kingdom to 3.5%.

Key Decisions for Investors

• Investors should consider an overweight allocation to Saudi Arabian equities with high domestic exposure, particularly in sectors like construction, banking, and consumer services that benefit directly from strong local demand and project pipelines.
• While current pricing power is a positive signal, it is critical to monitor the input cost sub-index as a leading indicator for potential margin compression if cost pressures continue to accelerate.
• The robust economic data reinforces a constructive macro view on the Saudi economy, but portfolio selection should remain discerning, favoring companies aligned with the strong domestic growth narrative over those dependent on the weaker export market.