RIYADH: Saudi Arabia’s construction sector expanded for a third consecutive month in July as new orders hit a five-month high, although the headline index eased to 55.2 from June’s peak.
The seasonally adjusted alrajhi capital Saudi Construction Index, compiled by S&P Global Market Intelligence, slipped from 56.3 in June but remained comfortably above the 50-point threshold separating expansion from contraction, marking its second-highest reading since the survey began in January.
Last month, a report released by the General Authority for Statistics revealed that Saudi Arabia’s Business Confidence Index climbed 1 point to 56.6 in June, primarily driven by optimism in the construction industry, which recorded a reading of 57.8, higher than the industry sector at 55 and the services sector at 55.5.
Sultan Al-Towaim, head of research at alrajhi capital, said the improvement seen in the his firm’s findings was “supported by stronger new order growth, reflecting continued demand across the sector and the reactivation of previously delayed projects.”
He added: “While input costs continued to rise, cost pressures eased during the month.”
In May, the Kingdom’s Construction Index stood at 51.2, while it was 48.5 in April, largely reflecting the impact of regional geopolitical tensions.
Factors driving growth
The report revealed that higher activity levels were linked to a sustained rebound in new order books and the reactivation of delayed projects, with new order growth accelerating to its strongest pace in five months, driven by faster increases across all three main segments.
Infrastructure work saw the quickest expansion of the three segments, and posted the steepest rise since the survey’s start, pushing the sub-index to 56.9.
The report added that government-backed infrastructure developments had provided a solid foundation for growth in July, particularly in transportation projects and utilities.
New orders in the residential segment expanded at a particularly strong rate, the fastest since January, driving the sub-index to 56. Many firms noted robust demand for urban residential projects and an improvement in broader market conditions.
Non-residential structures activity lost some momentum but still rose at the second-fastest rate since February, with the sub-index at 53.4.
Strong pipelines of new work led to a rise in employment for the first time in four months and increased input buying for the second consecutive month.
Cost pressures ease
Average input costs continued to rise sharply, though the rate of inflation eased to a three-month low from June’s survey-record high.
This was supported by improving supply conditions, reflected in the strongest improvement in vendor performance since February.
Business confidence strengthens
According to the report, business confidence strengthened to its highest level since the survey began.
Around 48 percent of firms predicted higher business activity over the year ahead, while only 4 percent forecast a decline.
Respondents cited easing geopolitical tensions, a revival in new contracts, opportunities linked to Vision 2030 initiatives, and greater use of public-private partnerships.
“Looking ahead, business confidence strengthened to its highest level since the survey began, supported by easing geopolitical tensions, a recovery in new contracts and increasing public-private partnership opportunities. These factors continue to provide a positive backdrop for Saudi Arabia’s construction sector,” said Al-Towaim.
