Saudi Arabia's non-oil private sector continued to grow in July, though at a slightly more modest pace, according to a closely watched business survey. The headline Purchasing Managers' Index (PMI) eased to 53.1 from 53.3 in June, a reading that still signals solid expansion for the fourth consecutive month.
The PMI, compiled by Riyad Bank and S&P Global, is a gauge of business conditions across the kingdom's non-oil economy. Any reading above 50 indicates growth, while below 50 points to contraction. The latest figure suggests that domestic demand remained firm, but export orders fell for the fifth month in a row, a trend that could weigh on future output.
What's driving the slowdown?
The dip in the PMI was largely attributed to softer export orders. Businesses in Saudi Arabia have been facing weaker demand from overseas markets, a challenge that has persisted for several months. However, domestic demand has held up well, supported by strong consumer spending and government initiatives aimed at diversifying the economy away from oil.
Firms also reported a slight cooling in their expectations for the year ahead. While still optimistic, the level of confidence dipped, reflecting concerns about global economic conditions and the ongoing export weakness. That caution is notable because business sentiment often influences hiring and investment decisions.
The non-oil sector is a key focus for Saudi Arabia as it pursues its Vision 2030 plan, which seeks to reduce the economy's reliance on hydrocarbons. Growth in areas like tourism, retail, and construction has been a bright spot, even as the oil sector faces its own volatility.
What it means for investors
For everyday investors, the PMI is a useful barometer of economic health. A reading above 50, even if slightly lower than the previous month, indicates that the non-oil economy is still expanding. That can be supportive for companies with exposure to Saudi consumer and business spending, from banks to retailers to construction firms.
The persistent decline in export orders, however, is a cautionary signal. It suggests that external demand is weak, which could hurt companies that rely on overseas sales. Investors might watch for any signs that this trend is spreading to domestic activity, which so far has remained resilient.
It's also worth noting that the PMI is a survey-based indicator, not a hard measure of output. It captures sentiment among purchasing managers, so it can sometimes over- or understate actual economic momentum. Still, it's one of the most timely reads on the non-oil sector available.
For those with a broader portfolio, the Saudi data fits into a larger picture of Middle East economies navigating global headwinds. Similar dynamics are playing out elsewhere, as seen in Australia's steady hiring demand and Japan's policy debates. The common thread is that domestic resilience is often offsetting external pressures.
Investors should also keep an eye on how Saudi Arabia's non-oil growth translates into corporate earnings. Companies with strong domestic exposure may continue to benefit, while those dependent on exports could face headwinds. As always, diversification across sectors and regions can help manage these risks.
In the coming months, the trajectory of export orders will be a key metric to watch. If they stabilize or recover, the PMI could move higher, reinforcing confidence in the non-oil economy. If they keep falling, the current expansion may lose further steam, even if it remains in positive territory.
