RIYADH: Non-oil business activity in Saudi Arabia maintained a sharp pace of expansion in July, despite slowing for the second month running, according to a survey released on Tuesday. 

Output grew at a sharp pace, underlined by a robust increase in new business inflows, but still staff levels rose only fractionally in July as firms continued to signal an excess of business capacity despite rising sales.

Rising demand from domestic and overseas clients supported the upturn, which some firms linked to competitive pricing strategies.

The seasonally adjusted IHS Markit Saudi Arabia Purchasing Managers’ Index (PMI) fell for the first time in four months to 55.8 in July, from 56.4 in June, due to weaker growth in output, new orders and employment compared to the previous month. 

Employment prospects were also harmed by a drop in future output expectations to the joint-weakest for more than a year, despite the strong improvement in operating conditions that extended the current run of growth to 11 months.

Hiring growth weakened to a fractional pace, as only few firms reported needing additional staff and backlogs were reduced solidly, suggesting a wide gap between demand and full capacity in spite of a sharp increase in new orders in recent months

“While Saudi Arabia’s PMI continued to signal strong growth in the non-oil economy in July, our survey data related to business capacity highlighted that challenging economic conditions prevailed,” said David Owen, an economist at IHS Markit.

“Firstly, employment growth slowed to only a marginal pace, suggesting that many companies still have little need for new hires in spite of a sharp rebound in new orders. Secondly, backlogs of work fell at the second-quickest pace for a year, adding further evidence that businesses have yet to reach pre-pandemic levels of capacity utilization,” he said.

“Sustained rises in demand should help the economy move closer to full capacity over the second half of the year. However, a drop in business expectations to its joint-weakest since June 2020 illustrated growing doubts that this will be a smooth ride,” he said.

Nearly 27 percent of surveyed businesses reported an increase in activity, linked to strengthening client demand and a loosening of pandemic-related measures.