The non-oil private sector continues to grow in April despite war turmoil

The Saudi non-oil private sector returned to growth in April, as companies increased their production rate in response to increased volume of new business and to make progress in existing businesses, according to the index report Riyad Bank Purchasing Managers’ Index issued today, Tuesday.

The main Purchasing Managers’ Index rose from 48.8 points in March to 51.5 points in April, exceeding the neutral level of 50.0 points, while the latest reading indicated a slight recovery in operating conditions, after the turmoil resulting from the war in the Middle East during the month of March.

Companies also indicated a slight increase in activity expectations for next year. However, the overall trade expansion rate continued to be negatively impacted by deferred customer spending decisions due to the conflict in the Middle East, while shipping disruptions continued to impact supply chains.

Regional disruptions impact production costs

The report explained that Non-oil companies saw a rapid increase in cost burdens in April as regional unrest affected raw material and freight prices. Total input costs rose at the fastest pace in the history of the study, leading to a near-record increase in sales prices.

In some cases, non-oil producing companies reported that delayed import shipments had limited business activity and prompted them to adopt a cautious approach to purchasing inputs, as the volume of total purchases fell for the second month in a row.

Record increase in production prices

The April study data indicated a significant increase in the cost burden on companies. Saudi Arabiais not an oil producer. Increases in raw material prices and transportation costs led to the largest rise in business expenses since the study began about 17 years ago.

Similarly, production prices rose at the fastest pace on record after August (2009) as companies sought to pass on higher costs to their customers. The notable rise in prices came despite some reports that some companies reduced prices due to intense competition.

However, inventory continued to grow as companies participating in the study indicated efforts to maintain purchase levels as high as possible. Average delivery times increased, as some companies chose to source production supplies domestically to limit the impact of international shipping delays.

Sales Stable

Sales growth remained relatively moderate during April, as delays in customer spending and investment decisions reportedly dampened gains, while anecdotal evidence suggested that caution surrounding the conflict in the Middle East influenced purchasing decisions. Domestic sales contributed to this recovery, while new export orders fell at the fastest pace in the history of the study.

Despite the current challenges, non-oil private sector companies in Saudi Arabia remained optimistic about the outlook for business activity, with the degree of confidence improving since March, and companies attributed this optimism to long-term expansion plans and local infrastructure development projects.

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