PMI slips to 56.1 as wage costs reach a record high and selling prices rise.
“Dubai: Saudi Arabia’s non-oil private sector slowed slightly in February, but companies continued to hire aggressively and lift wages at record-breaking rates, reflecting confidence that domestic demand remains strong.”
The seasonally adjusted Riyad Bank Saudi Arabia Purchasing Managers’ Index (PMI) fell to 56.1 in February from 56.3 in January, marking the slowest improvement in operating conditions in nine months. Despite the slight decline, the index remains well above the 50-point threshold, signaling ongoing expansion in the non-oil economy, even as growth momentum eases from last year’s peak.
Growth cools, but demand remains strong
Output growth in Saudi Arabia’s non-oil private sector eased to a six-month low, yet businesses continued to report solid gains in activity. Survey participants frequently highlighted stronger customer demand, new project approvals, improved domestic sales, and intensified marketing efforts. While competitive pressures in certain markets moderated the pace of expansion, order books continued to grow.
New orders remained a key driver of activity, supported by government initiatives, digital transformation projects, and collaborative client ventures. International sales expanded for the seventh consecutive month, albeit at a slightly slower pace than earlier in the cycle.
Naif Al-Ghaith, Chief Economist at Riyad Bank, said:
“Saudi Arabia’s non-oil private sector maintained its expansionary trajectory, with a PMI reading of 56.1 in February, although output growth slowed to its lowest level since last August. The performance was supported by strong domestic demand and a steady stream of new project approvals. Despite the moderation in momentum, the sector remains firmly in growth territory, underpinned by seven consecutive months of rising international sales and a continued increase in new orders.”
Businesses recalibrate amid sustained growth
Following a period of rapid expansion, Saudi Arabia’s non-oil private sector appears to be recalibrating, with the PMI gradually declining since reaching one of its highest levels in over a decade last October. Overall conditions remain robust, but the data indicate a shift toward steadier, more measured growth.
Hiring surge drives record wage inflation
Employment rose sharply in February, with job creation hitting a four-month high and ranking among the strongest in the survey’s history. Firms attributed the hiring boost to increased sales volumes and a build-up of outstanding orders, contributing to record wage growth across the sector.
Rising wages and hiring drive cost pressures
The recent surge in hiring has come at a cost. Staff expenses climbed at the fastest pace since the survey began in August 2009, reflecting higher salaries offered to attract and retain workers, particularly in technical and sales roles. The sharp rise in wage bills was a key feature of February’s data, highlighting growing competition for skilled labour.
Al-Ghaith noted:
“A key highlight of the February results was the sizeable increase in employment, as firms expanded their workforce to manage higher workloads and new business inflows. This acceleration in hiring signals confidence in near-term demand, even as overall output growth moderated. At the same time, supply chain performance improved further, with delivery times shortening amid better coordination and operational efficiencies.”
Prices climb amid cost pressures
Rising wage costs contributed to higher selling prices, which increased at the joint-fastest pace since May 2023, matching October’s recent high. Companies also faced higher supplier charges and rising metals prices. A reduction in fuel payments helped moderate overall purchase-price inflation, while some firms benefited from renegotiated vendor contracts.
Supply chains showed further improvement despite stronger input buying. Delivery times shortened to the greatest extent in nine months, reflecting operational gains and enhanced vendor relationships. Companies continued to raise purchasing volumes to match expanding workloads while maintaining a balanced approach to inventory management.
Confidence remains steady into the year ahead
Expectations for the next 12 months remain positive, with firms linking anticipated output growth to new client projects, stronger demand, and supportive domestic economic conditions. The overall picture suggests the economy is adjusting to a more sustainable pace following a prolonged period of rapid expansion.
Al-Ghaith said:
“Overall, February’s results indicate an economy that remains strong but is moving toward a more sustainable balance. Growth has moderated, yet demand and hiring continue to underpin expansion. The broader trend remains positive, with businesses actively adjusting capacity while maintaining confidence in underlying market conditions. This balanced approach to inventory and staffing suggests the private sector is well positioned to navigate evolving economic dynamics throughout the remainder of the year.”
Consumers and businesses are navigating a mixed environment. While growth remains solid and hiring robust, rising wages and selling prices could translate into higher costs in parts of the economy. Saudi Arabia’s non-oil sector remains firmly in expansion mode, though the latest data suggest the breakneck pace of last year is giving way to steadier, more sustainable momentum.
