Saudi Arabia's business activity showed solid annual growth in June, according to the latest data from the General Authority for Statistics (GaStat). Operating revenues across the economy rose 6.1% compared with the same month last year, a sign that the kingdom's non-oil sectors continue to expand even as the broader economy adjusts to lower oil output.
The monthly picture was less rosy: revenues dipped 3.2% from May, dragged down by a sharp drop in mining and quarrying. That monthly decline highlights the continued influence of the oil and gas sector, which remains the largest single component of Saudi Arabia's economy despite years of diversification efforts.
Manufacturing leads the way
The annual gain was broad-based, but manufacturing stood out. Revenues in the manufacturing sector climbed 16.9% year over year, matching the pace of financial and insurance activities, which also rose 16.9%. Transportation and storage revenues grew even faster, up 18.4%, while construction and wholesale and retail trade also contributed to the overall increase.
These figures point to a pattern that has become familiar in Saudi Arabia: the non-oil private sector is growing at a healthy clip, driven by government spending on infrastructure, tourism, and new industries. The kingdom's Vision 2030 plan, launched in 2016, aims to reduce dependence on oil by building up sectors like manufacturing, logistics, and financial services.
Building permits, a forward-looking indicator of construction activity, jumped 20.3% year over year in June. That suggests the construction boom is far from over, which bodes well for demand for materials, machinery, and labor in the coming months.
Wages and employment
Employee compensation rose 9.1% year over year, a sign that businesses are hiring and paying more. Higher wages can boost consumer spending, which in turn supports retail, real estate, and other domestic industries. For investors, rising compensation is often a signal that companies are confident enough in their outlook to expand their workforce.
However, the monthly decline in revenues is a reminder that the economy is not immune to swings in global energy prices. Mining and quarrying, which includes oil and gas extraction, is the biggest revenue generator in the kingdom, and its monthly drop weighed on the overall index.
What it means for investors
For everyday investors, the GaStat data offers a useful snapshot of where the Saudi economy is heading. The strong annual growth in non-oil sectors is a positive sign for companies listed on the Tadawul, Saudi Arabia's stock exchange, particularly those in manufacturing, construction, and financial services.
Investors have been watching Saudi equities closely, with Saudi stocks edging up after a brief Tadawul halt earlier this month, as global factors like Federal Reserve policy and shipping disruptions in the Strait of Hormuz continue to influence sentiment. The tensions around Hormuz remain a key risk for oil prices and, by extension, for the Saudi economy.
For those with exposure to Saudi assets, the key takeaway is that the non-oil economy is growing, but the oil sector still holds significant sway. Diversification is happening, but it is a gradual process. Investors should keep an eye on monthly data to see whether the non-oil momentum can be sustained, especially if global oil prices weaken further.
In the broader Gulf region, similar trends are playing out, with governments investing heavily in infrastructure and technology to reduce their reliance on hydrocarbons. The Baltic Dry Index, a measure of shipping costs for dry bulk goods, has been cooling recently, which could signal softer global demand for raw materials—a factor that could eventually weigh on Saudi export revenues.
For now, the June data suggests that Saudi Arabia's non-oil economy remains on a solid footing. The rise in building permits and employee compensation points to continued investment and job creation, which are essential for the kingdom's long-term goals. But the monthly dip in revenues, driven by mining, is a reminder that the oil sector still casts a long shadow.
