Bold claim: Saudi Arabia’s non-oil private sector is still growing strongly, even as the pace slows. But here’s where it gets controversial: hiring and wages are hitting record levels while output growth cools. This combination signals confidence in domestic demand, yet raises questions about sustainability if momentum continues to ebb.
Saudi Arabia’s non-oil private sector still expanded in February, though at a softer pace. The Riyad Bank Saudi Arabia Purchasing Managers’ Index (PMI) declined slightly to 56.1 from 56.3 in January, marking the weakest improvement in operating conditions in nine months. Even so, the index stays well above 50, which confirms ongoing expansion in the non-oil economy, even as momentum has cooled from the peak seen last year.
Growth slows, but demand remains robust
- Output growth eased to a six-month low, yet firms reported solid activity gains, driven by stronger customer demand, new project approvals, and improved domestic sales, supported by more aggressive marketing.
- New orders stayed a key engine of activity, bolstered by government initiatives, digital development efforts, and client collaborations. International sales also rose for the seventh month in a row, albeit at a softer pace than earlier in the cycle.
Chief economist Naif Al-Ghaith of Riyad Bank highlighted that February’s PMI shows continued expansion on the back of resilient domestic demand and steady project approvals, with seven consecutive months of rising international sales and increasing new orders. He also noted a gradual shift toward steadier growth after a period of rapid expansion last October.
Hiring surge and the wage surge that followed
- Employment jumped in February, reaching a four-month high and ranking among the strongest increases in the survey’s history. Firms cited higher sales volumes and backlogs as reasons to expand payrolls.
- This surge in hiring came with a cost: staff expenses rose at the fastest pace since the survey began in August 2009, reflecting competition for skilled labor, especially in technical and sales roles.
- Al-Ghaith pointed out that the significant uptick in employment signals confidence in near-term demand, even as overall output growth slowed. He also noted improvements in supply chains, with shorter delivery times due to better coordination and efficiencies.
Prices rise amid input costs
- Wage-driven cost pressures pushed selling prices up at the joint-fastest rate since May 2023, alongside higher supplier charges and metals costs. Some relief came from lower fuel payments and renegotiated vendor contracts.
- Supply chains showed signs of improvement, with shorter delivery times marking the greatest nine-month improvement. Firms continued to increase purchasing volumes to match rising workloads while maintaining balanced inventory management.
Outlook stays positive, but with cautions
- Sentiment for the next 12 months remains positive, with expectations of output growth driven by new client projects, steadier demand, and supportive domestic conditions.
- The overall picture suggests the economy is moving toward a more sustainable pace after a period of rapid expansion. Al-Ghaith described February’s results as reflecting a strong but more balanced economy, with growth moderating yet demand and hiring anchoring expansion.
- The private sector appears well-positioned to navigate evolving economic dynamics, maintaining inventory and staffing discipline as the year progresses.
A mixed environment for households and businesses
- Growth remains solid, and hiring is strong, but rising wages and prices could translate into higher costs across parts of the economy.
- Saudi Arabia’s non-oil sector remains in expansion mode, but the latest data indicate a shift away from last year’s breakneck pace toward steadier momentum.
If you found this trend interesting, consider this question: with hiring surging and costs rising, will companies eventually slow wage growth to protect margins, or will demand stay resilient enough to keep both hiring and wages elevated? Share your thoughts in the comments.
