Job creation in Saudi Arabia's non-oil sector climbs to second-highest in over a decade: PMI

Saudi Arabia's non-oil private sector business environment strengthened significantly in February, mainly due to strong growth in customer sales and business activity. Improved market demand has prompted companies to actively increase employment to expand operational capacity and prepare for future growth opportunities.

The Riyad Bank Saudi Arabia Purchasing Managers’ Index (PMI) registered 58.4 in February, seasonally adjusted, slightly below January's more than decade-high reading of 60.5. Although the business environment in the non-oil private sector improved significantly last month, the decline in the index was mainly due to a slowdown in new business growth from record highs at the beginning of the year.

The strong business environment in Saudi Arabia's non-oil private sector supported a significant increase in employment in February. The latest survey data shows that the rate of job creation climbed to the second-highest level in more than a decade, second only to October 2023. Employment growth was strongest in the manufacturing and service sectors, which also had the highest levels of confidence.

Dr. Naif Al-Ghaith, Chief Economist at Riyad Bank, said: "Although the rate of new order growth has slowed from the recent peak in January, companies remain confident in future demand. This is reflected in higher headcount as companies expand their workforce to meet increased workloads and business expectations."

Companies in Saudi Arabia's non-oil private sector noted resilient demand conditions in February, with increased sales and new customers helping to boost output across the non-oil sector. Growth in tourism and greater marketing efforts were also seen as factors supporting growth. Although the expansion of output has slowed slightly, it is still one of the most significant expansions since mid-2023.

In addition, Saudi Arabia's non-oil sector companies continued to emphasize strong growth in new order volumes, with 35% of companies reporting higher sales in February. Higher demand was partly driven by international markets, as new export business increased significantly, while some companies mentioned gaining customers through price promotions.

Al-Ghaith added: "Although export growth has slowed slightly in recent months, it remains above average, further strengthening the non-oil sector. At the same time, companies continue to increase purchasing, but at a slower pace, as many have already built up inventories in previous months."

Input price pressures remained significant in February, mainly due to rising material prices and wages, although the rate of inflation slowed slightly to a four-month low. Due to competitive pressures, higher costs have only translated into a modest increase in selling prices.

Business expectations for the coming year rose to their highest level since November 2023. In many cases, companies expect economic growth and government initiatives to support development and expansion opportunities, while some also pointed to strong momentum in future business.

Al-Ghaith concluded: "Saudi Arabia's non-oil economy remains on a solid growth trajectory, with continued expansion in employment, efficient supply chains and strong domestic and international demand all indicating sustained economic momentum. While the PMI has declined slightly, underlying indicators suggest that the private sector remains well-positioned for continued expansion, supported by a positive outlook for business activity and market conditions."