RIYADH: Saudi Arabia’s business activity expanded at the fastest pace for three months in May, with the Riyad Bank Purchasing Managers’ Index rising to 52.8 from the previous reading of 51.5.
The latest survey, compiled by S&P Global, showed the Kingdom’s non-oil economy returning to firmer growth after softer conditions in March and April, with output supported by stronger domestic demand and the revival of previously delayed projects.
In March, the Kingdom’s PMI dropped below 50 after Iran’s retaliatory strikes across the Gulf triggered the most severe business disruption in the region since the COVID-19 pandemic. The attacks led to widespread airport closures, suspended port operations, and sharp volatility in financial markets.
Naif Al-Ghaith, chief economist at Riyad Bank, said the rating signaled renewed momentum in business activity after the softer conditions observed during March and April.
He added: “The reading remained comfortably above the neutral 50 threshold, confirming that non-oil economic conditions expanded and that the recent slowdown was temporary rather than structural.”
Developing a robust non-oil ecosystem remains central to Saudi Arabia’s Vision 2030 strategy as the Kingdom seeks to diversify its economy and reduce dependence on crude oil revenues.
According to the survey, firms attributed the rebound in May to normalizing working conditions after earlier conflict-related disruptions, the restart of suspended contracts and stronger domestic demand.
Despite the improvement in output, demand conditions remained relatively subdued.
New orders increased only modestly and stayed well below the long-run trend. Businesses cited improving economic conditions and the resumption of projects as supportive factors, but delayed client spending and intense competition continued to weigh on order growth.
External demand remained under pressure, with new export orders declining sharply for the third consecutive month. Survey respondents pointed to shipping disruptions, elevated freight and fuel costs, and ongoing regional geopolitical tensions as key challenges affecting export performance.
Supply chain conditions showed signs of improvement during the month, with suppliers’ delivery times shortening for the first time since February. Firms said greater reliance on local suppliers helped secure faster deliveries despite continuing international shipping delays.
This stabilization allowed firms to raise their purchasing activity for the first time in three months, reflecting improved expectations for future demand and efforts to build inventory buffers.
“An important positive development was the improvement in supplier delivery times for the first time in several months, suggesting that supply chain conditions are gradually stabilizing. This helped firms manage inventories and operational activity more efficiently despite elevated freight and transportation costs,” said Al-Ghaith.
Employment returned to growth in May, offsetting the first decline in staffing levels in two years in the previous survey period.
The job growth was relatively soft compared to the strong hiring seen earlier in the year, but it helped ease pressure on capacity as backlogs of work continued to rise for the eleventh straight month.
“Inflation conditions also remain supportive for economic growth. Saudi Arabia’s annual inflation rate stood at only 1.7 percent in April 2026, remaining among the lowest globally and significantly below inflation levels seen in many advanced and emerging economies,” said Al-Ghaith.
He added: “Firms in the PMI survey reported higher transport, freight, and supplier costs, and also demonstrated stronger pricing power by gradually passing part of these costs onto customers without materially weakening domestic demand.”
Al-Ghaith further said that the latest PMI reading supports the expectation that Saudi Arabia’s non-oil economy will continue its upward trend during the remainder of 2026.
He concluded by saying that improving domestic demand, stabilizing supply chains, containing inflation, strong government-led investment activity, and healthy trade performance will collectively provide a strong foundation for continued private sector expansion.
