Riyadh, Saudi Arabia – The performance of Saudi Arabia’s non-oil private sector witnessed a significant decline in March. This was directly impacted by the geopolitical repercussions of the ongoing war in the Middle East. These exceptional circumstances disrupted vital supply chains and delayed spending decisions by consumers. As a result, economic activity entered contraction territory for the first time in over three years.
Purchasing Managers’ Index (PMI) data: Breaking the growth chain
According to the latest data from the Riyad Bank Purchasing Managers’ Index (PMI), compiled by S&P Global, the headline index fell sharply from 56.1 points in February to 48.8 points in March. This drop below the 50-point mark signals a deterioration in business conditions for the first time since August 2020, when the global economy was reeling from the COVID-19 pandemic. Dr. Naif Alghaith, Chief Economist at Riyad Bank, explained that this decline represents a “temporary correction” following a prolonged period of robust growth. He noted that the primary reason for the drop in demand was a halt in new orders. Consequently, customers adopted a more cautious stance due to security uncertainty. He added, “Export orders saw a significant decline as cross-border activity slowed, leading to a decrease in output from previous record highs.”
Supply chain pressures and order backlogs
On an operational level, supply chain challenges added further pressure. Companies reported significant shipping delays and increased transportation costs. This led to the fastest increase in supplier delivery times since June 2020. However, Al Ghaith pointed to a positive aspect: the backlog of unfulfilled orders. This indicates that underlying demand remains strong, but is awaiting stabilization of the logistical situation.
An optimistic outlook for the medium term
Despite the gloomy short-term outlook, Al-Ghaith emphasized that the structural factors of the Saudi economy remain supportive and strong. He cited the continued expansion of employment as evidence, reflecting businesses’ confidence in future demand. The outlook also remains generally positive, bolstered by massive government spending initiatives and the National Transformation Program under Vision 2030. The index also showed a slowdown in price pressures in March, with input costs rising at their slowest pace in a year due to a slowdown in wage inflation. Consequently, analysts view the March slowdown as a “transitory” one, influenced by the political climate, rather than a structural downturn. Nevertheless, the medium-term growth outlook remains stable and promising.
