Media Centre

Saudi non-oil business activity stumbled in May as new orders growth reached two-year low

Saudi Arabia's non-oil business activity expanded at a slower pace in May as growth in new orders fell to a 25-month low, a business survey showed on Tuesday.

The seasonally-adjusted Riyad Bank Saudi Arabia Purchasing Managers' Index fell to 56.4 in May, from 57.0 the previous month, and was the second lowest reading in 22 months, higher only than January's low. A reading above 50 marks indicates expansion in activity.

Growth in sales was also the least marked in just over two years. Demand expanded at a slower pace as some companies reported a slowing of market conditions and difficulties gaining new customers due to high competition.

However, the surge in demand has also led to price pressures impacting input prices and staff costs, although the increase in output prices has been observed at a slower pace, said Naif Al-Ghaith, Riyad Bank's chief economist.  

"This balancing act reflects the challenges faced by businesses in managing costs while trying to capitalize on the expanding market."

Inventory growth continued after reaching its highest on record in April.  However, higher stock levels led to some pullback on purchasing growth which slipped to the weakest since September 2021.

The slowdown coincided with a drop in business confidence towards the 12-month activity outlook, bringing sentiment to its lowest level since January.

Employment levels in May increased, offsetting the first decline in over two years in April. Staffing growth was mostly linked to higher workloads and efforts to reduce outstanding orders, which duly fell slightly.

Cost pressures eased from the beginning of the year "despite a solid increase in supplier prices and a much quicker rise in employee wages", the report said. However, selling prices rose only marginally as firms reacted to growing competitive pressures.