Where is the non-oil sector heading in Saudi Arabia?

The non-oil sector in Saudi Arabia recorded a great success in the month of May, as the Kingdom's economic diversification strategy continues to advance.

The latest report on the Riyad Bank Saudi Arabia PMI, formerly known as S&P Global Saudi Arabia PMI, revealed that the Kingdom's PMI stood at 58.5 in May, well above a reading of 50, which indicates economic growth.

This was a slight decrease compared to the number of 59.6 in April.

General economic activity

Nayef Al-Ghaith, chief economist at Riyad Bank, said that despite the slight decline, the high number reinforces the view that overall economic activity in Saudi Arabia is "holding together well."

Gross domestic product

He added: The Kingdom's non-oil GDP is likely to grow significantly in the second quarter of this year thanks to the healthy state of the private sector.

Slow oil economy

The report indicated that new order flows to non-oil private sector companies in the Kingdom gained significant momentum in May after growth accelerated to its highest level in just over eight and a half years in April. However, the rate of expansion slowed slightly despite a renewed rise in sales from foreign customers.

Tourism and construction sectors

According to the report, the rise in new orders positively affected the tourism and construction sectors in Saudi Arabia, which ultimately led to an increase in job creation in May.

Job creation

New orders grew significantly, reflecting strong growth in demand, particularly in tourism and construction activities. This has resulted in the fastest combined rate of job creation since 2018, which has allowed businesses to work through the backlog of work at a faster pace this month,” added Al Ghaith.

He further noted that rising levels of employment and activity have pushed wages up at the second-fastest pace in seven years, leading to "a sustained rise in the prices charged to consumers".

Market conditions improve

According to the report, business expectations for the next 12 months eased slightly in May, but companies expect improving market conditions, strong sales and supportive government economic policy to help growth prospects.

Al Ghaith indicated that the development of mega projects in the country aims to diversify the economy and will continue to drive private sector growth for the remaining months of this year.

Mega projects development

The government continues to implement large-scale diversification policies and accelerate the development of mega projects, with the aim of strengthening the private sector, the engine of job creation. Therefore, we are confident that the non-oil sector will play a major role in driving growth this year, supported by increased investments and strong demand.