Business activity rebounded in Saudi Arabia during May despite continued cost pressures

Saudi Arabia’s non-oil private sector business activity witnessed a marked improvement in May, with The Riyad Bank Purchasing Managers’ Index showed a sharp rise in production as domestic demand improved and supply chains stabilized. However, growth in new orders remained modest amid another contraction in exports.

The report explained that rising input costs led to continued rise in product prices, although overall inflation pressures eased slightly since April.

The PMI improved during May

The headline PMI rose from 51.5 points in the month April to 52.8 points in May, indicating a marked improvement in the business environment.

However, the index remained much weaker than its long-term historical average of 56.8 points, as some responses from companies participating in the study indicated that the ongoing geopolitical tensions in the region had dampened the pace of growth.

Non-oil activity rises amid declining demand

according to the report Riyad Bank Non-oil private sector activity rose at its fastest pace in 3 months during May, indicating a strong recovery from the decline witnessed in March. Companies attributed this recovery to the return of business conditions to normal after previous disturbances related to the conflict in the region, the resumption of suspended work contracts, and an increase in domestic demand.

In comparison with the strong rise in production, demand rates appeared somewhat weak in May, and new orders rose in general, but the pace of expansion was modest and far below the long-term trend, as improving economic conditions and the resumption of projects contributed to supporting activity, but this was offset by a delay in customer spending and the continuation of strong competitive pressures.

External demand also remained weak, with new export orders falling for a third straight month, weighed down by shipping disruptions, higher freight and fuel costs and geopolitical tensions.

Supply conditions improved for the first time since February

Supply chain conditions saw some improvement, with average supplier delivery times falling for the first time in three months, and companies reporting that increased reliance on domestic suppliers helped secure faster deliveries, even as international shipping delays continued. Companies also raised their purchasing volumes for the first time since February, reflecting improved expectations for future orders and a desire to secure production supplies amid continuing logistical uncertainty.

Job growth returns

Return Employmentto growth in May, offsetting the first decline in employment levels in two years, recorded in the previous study period. However, the increase in jobs was modest, and was less than the strong hiring phase recorded at the beginning of the year. Companies attributed hiring to the need to reduce pressures on their operational capacity, in light of the rise in backlogs for the 11th month in a row.

Cost pressures remained high at the level of the non-oil producing sector in the Kingdom of Saudi Arabia, although there was a slight slowdown from the highest record level recorded in the April study.

Rising purchase prices

Companies participating in the study indicated higher purchasing prices, shipping and transportation costs, and an increase in supplier fees.
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While employee cost inflation slowed for the third month in a row to reach a slight level, non-oil producing companies made another increase in production prices in May, as the rate of increase remained among the fastest in the history of the study despite slowing compared to April.

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