Riyadh – Mubasher: The headline seasonally adjusted Purchasing Managers’ Index (PMI) of Saudi Arabia dropped to 55.4 in January from 57.5 in December 2023, according to Riyad Bank’s latest data.
The PMI reading was at its lowest level in exactly two years, marking a solid, but weaker, advancement in the health of the non-oil private sector economy.
Although the upturn remained strong overall and widespread across the monitored sectors, business activity levels expanded at their slowest pace since the beginning of 2022.
The rise in activity was attributed to a surge in new business intakes. Nonetheless, the rate of sales growth eased considerably to a five-month low.
Output prices witnessed a modest rise as competition often made firms avoid hiking their fees. Additionally, purchase prices faced by non-oil firms soared at the sharpest rate since May 2012.
The survey highlighted that strong demand, higher material prices, and greater supply chain risk were behind the increase, with some mentioning higher shipping costs amid the Red Sea crisis.
With demand growth slowing and margins under pressure, business expectations for the upcoming year dropped to the second-weakest since mid-2020 in January.
The companies expected that waning demand growth and renewed inflationary pressures could limit business expansion in 2024.
Naif Al Ghaith, Chief Economist at Riyad Bank, said: “In recent assessments of the Saudi Purchasing Managers' Index (PMI), it's clear that the non-oil economy has continued to grow, despite challenges stemming from rising costs and interest rates.”
“Despite cost increases, output prices have remained low, signaling a high level of competitiveness in the market,” Al Ghaith underlined.
He elaborated: “This suggests that businesses are absorbing some of the cost pressure rather than passing it on to consumers, which could indicate a strategy to maintain market share in a competitive environment.”
“Moreover, the backlog of work has registered expansion for the first time in four years, particularly indicating a surge in the construction sector,” the economist added.
The official concluded: “While cost pressures exist, the resilience of the non-oil economy, the competitiveness reflected in output prices, and the surge in construction activities all contribute to a complex but potentially promising economic picture for Saudi Arabia.”
