Northman & Sterling

Saudi Arabia’s Economy Hits Eight-Year High as Output Growth Strengthens

In February, Saudi Arabia’s non-oil economy recorded its highest business confidence level in eight years as output growth strengthened. The Riyad Bank Purchasing Managers’ Index showed that the country’s largest economy saw a rise in business inflows, which boosted the non-oil sector, leading to a significant increase in total new orders. The PMI reading of 59.8 in February was a notable improvement from 58.2 in January and was well above the neutral 50 mark that separates growth from contraction.

This increase in non-oil activity came at a time when the country’s economy grew by 8.7% in 2022, supported by a sharp increase in the oil and non-oil sectors. Saudi Arabia’s preliminary estimates for 2023 show gross domestic product growth of 3.1%, according to the General Authority for Statistics. However, the International Monetary Fund predicts that the country’s economy will grow by 2.6% this year and by 3.4% in 2024.

The PMI survey also highlighted that more than 42% of surveyed companies indicated a rise in new orders in February, with export orders also increasing at a quicker pace. The survey also revealed that employment and purchasing activity increased as businesses expanded inventories to a greater degree than in January. The job numbers rose at the second-fastest rate in five years, as companies tried to fill vacancies to meet future demand.

Inflation rates also increased due to the rise in purchase costs, which played a role in accelerating an overall increase in costs. Companies raised the prices of their products and services as staff wages also continued to rise for the fourth straight month. However, Saudi Arabia’s inflation rate for 2022 was estimated at 2.6% and, according to preliminary forecasts, is expected to be at 2.1% in 2023.

Meanwhile, the PMI survey for Egypt showed a slight improvement in operating conditions in February as the rate of output decline eased from the previous month. The seasonally adjusted S&P Global Egypt Purchasing Managers’ Index reading rose to 46.9 in February from 45.5 in January, indicating a softer downturn. However, demand in the country’s non-oil economy continued to be affected by high inflation and supply chain pressures, with job numbers falling at their fastest rate in nine months.