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According to the latest Purchasing Managers Index (PMI) data from Riyad Bank, the Saudi Arabian non-oil private sector is experiencing a rapid economic growth in March at its fastest rate in 5 years which is expected to lead to more job creation and increased spending by businesses.

However, there is a catch – Saudi firms are having difficulty passing on their increased costs to their customers, which is causing a slight rise in selling prices. Undoubtedly, the selling prices rose only ‘marginally’ in March, which is attributed to the fierce competition and resistance from customers. For this reason, the optimism of businesses regarding the immediate future is at its highest point in the past three years.

The most noteworthy aspect is the job creation – “Staffing levels have increased across all sectors and the growth in employment was among the most significant seen in the past five years,” said Naif Al-Ghaith, Chief Economist at Riyad Bank.

“Business conditions remain powerfully positive at the end of the first quarter of 2023 as improving market conditions and augmented development spending helped to strengthen demand in the non-oil private sector.

Both output and new orders have grown sharply, placing extra pressure on capacity at non-oil companies.” The March PMI reading for the Saudi economy – which is likely to be boosted by the most recent cut of 500,000 barrels a day from May – comes to 58.7, a slight decrease from the 59.8 in February, which was the highest in almost 8 years.

“Despite the worldwide economic issues such as the latest credit crunch and rising uncertainty, Saudi non-oil firms still showed a powerful degree of trust in future activity in March,” said Al-Ghaith. “Helpful governmental policies and increasing demand are the reasons for this optimism.”

Optimistic Outlook for future upturns

The non-oil companies in Saudi Arabia remain optimistic about further upturns in activity in the next 12 months. This trust has not diminished since February, and is ‘more powerful than the trend seen during the past three years’.

“The strong assurance and the need to boost potential caused companies to expand their staff in March,” the PMI report adds. “Although it was a bit slower than February, this rise in employment was one of the quickest seen in the last five years.”

Rise in Exports

March numbers show more sustained pickup in exports. This, according to Al-Ghaith, can be due to two reasons. “First, the improvement in industrial landscape has created positive grounds for producers to diversify their production lines and compete in foreign markets, enlarging their market share,” he added. “Secondly, the recent depreciation of the US dollar made those goods more affordable and accessible to a number of inflation-torn economies.”