Saudi Gazette report

RIYADH —The Saudi non-oil private business activity recorded the highest level in February in eight years, thanks to a strong increase in demand and an optimistic economic outlook, according to a survey published on Sunday.

The seasonally adjusted Purchasing Managers’ Index of the Riyad Bank jumped to 59.8 in February from 58.2 in the previous month, the fastest rate of increase since March 2015. The survey said that improved economic conditions drive confidence in future business activity over the period of the next 12 months.

The significant rise in new orders indicates an improvement in the economic conditions for companies. The new orders sub-index rose to 68.7 last month, the highest reading in more than eight years, from 65.3 in January, extending a recent upward trend and building strong demand momentum. As a result, the output sub-index posted a strong increase, reaching 65.6 in February from 63.6 in the previous month, which led to further expansion in hiring and purchasing.

Naif Alghaith, chief economist at Riyad Bank, told Al-Arabiya.net that the Purchasing Managers’ index (PMI) for the non-oil business sector in Saudi Arabia during February made a qualitative leap to the highest level since 2015, and all sections of the index achieved positive results.

Alghaith said that the PMI includes five sections, including new orders, which recorded a significant increase driven by the increase in demand, and its relative weight in the index is 30 percent while the production section rose at the highest pace since 2015, and its relative weight in the index is about 25 percent.

He said that the employment department achieved the second-highest employment rate during the past five years, with a relative weight of 20 percent, while the supplier delivery department witnessed an acceleration in February, with a relative weight in the index of about 15 percent. “Despite the tightening of monetary conditions, the balance of supply and demand seemed strong, driven by ongoing projects across the Kingdom, which led to a sharp increase in production and new orders for companies, in addition to an increase in the demand for labor. But inflationary pressures increase costs for firms,” he said while noting that the inflation rate in Saudi Arabia rose to 3.4 percent in January, up slightly from the previous month.

Prices have responded to the increase in demand with a clear increase in input costs, especially in the services and construction sectors, Alghaith said adding that he expects cost pressures and the current increasing demand to continue in the medium term.