Saudi Arabia's non-oil growth stays strong despite softer July PMI

06/08/2025 06:43 AST

Saudi Arabia's non-oil business activity continued to expand in July, even as growth momentum softened, with the Purchasing Managers' Index easing to 56.3, down from 57.2 in June, a market tracker showed.

Compiled by S&P Global for Riyad Bank, the PMI remained well above the neutral 50-point threshold, signaling ongoing improvement in private sector operating conditions.

The robust growth in Saudi Arabia's non-oil business activity aligns with the broader goals of Vision 2030, which aims to diversify the Kingdom's economy and reduce its reliance on oil revenues.

This comes as Saudi Arabia's economy grew by 3.9 percent year on year in the second quarter of 2025, driven by strong non-oil sector performance, according to flash estimates released last month by the General Authority for Statistics.

Naif Al-Ghaith, chief economist at Riyad Bank, said: "Saudi Arabia's non-oil economy remained on a solid growth track in July, supported by higher output, new business, and continued job creation. Although the headline PMI edged down to 56.3 from 57.2 in June, the reading still pointed to a healthy level of activity across the private sector."

He added: "Firms continued to benefit from ongoing project work, resilient domestic demand, and focused marketing efforts, even as some indicators showed signs of cooling compared to earlier in the year."

Al-Ghaith noted that the slight dip in the headline index was primarily due to a moderation in new order growth. He said businesses were still experiencing improved demand, though "competitive pressures and more cautious client spending weighed on the pace of expansion."

He also pointed out that external demand was softer and that purchasing activity had increased at a slower pace.

On the employment front, Al-Ghaith said firms continued to expand their workforce to support rising activity, with "July marking another solid month of hiring as companies worked to keep operations running smoothly."

He further noted that firms expect growth to continue over the coming year, underpinned by steady demand, strong pipelines, and Vision 2030-linked investments.

Employment is expected to remain supportive, although rising input costs and wages led to price hikes - especially in services, construction, and manufacturing.

The PMI report also showed that non-oil private sector output grew strongly in July, driven by ongoing projects and new orders. However, the pace of expansion was the slowest in three and a half years.

Order books continued to develop, buoyed by solid domestic demand and active sales efforts. However, growth was partially offset by intensifying competition, lower footfall, and the first drop in export orders in nine months, as firms faced challenges in attracting new foreign clients.

In response to rising activity and backlogs, firms recorded another sharp increase in hiring, following June's 14-year employment peak. The uptick was attributed to capacity constraints and growing workloads.

Inventory levels rose significantly in July, particularly among manufacturers and wholesale and retail firms, even as new input purchases slowed. Delivery times improved but at a slower rate, in part due to customs delays.

Input prices in the Kingdom's non-oil sector increased strongly during the month - albeit at a slightly slower pace than in the second quarter - driven by steep salary hikes to retain staff. This contributed to a rise in selling prices for the second straight month.