The growth in non-oil business activity in Saudi Arabia has decelerated to its lowest level in two and a half years, according to the latest Purchasing Managers’ Index (PMI) data from the kingdom.
The Riyad Bank Saudi Arabia PMI for June registered a seasonally adjusted reading of 55, down from May’s 56.4. Despite this decline, the reading still indicates a robust growth rate for the non-oil sector.
Chief economist Naif Al-Ghaith of Riyadh Bank commented on the second quarter, noting that while growth figures for Q2 suggest a positive outlook for Saudi Arabia’s non-oil GDP, with expectations exceeding 3%.
Saudi Arabia has been actively diversifying its economy away from oil dependency, achieving a milestone last year by increasing the share of non-oil activities in budget revenues to 50%. The kingdom’s non-oil economy was valued at approximately $453 billion in constant prices.
However, as Saudi Arabia continues to cap oil production, the contribution of oil activities to the budget has declined. According to Saudi Arabia’s General Authority for Statistics, a 10.6% decrease in oil activities in the first quarter of 2024, due to production limits of 9 million barrels per day, led to a 1.8% drop in the kingdom’s GDP compared to the same period in 2023.
The restriction on oil production appears set to continue in response to current oil price trends and market outlook. While Brent crude prices have shown a slight increase amid geopolitical tensions in the Middle East and strong U.S. demand expectations, they remain below Riyadh’s target levels.
Even with a notable decrease in exports in June, which accounted for half of the global oil export reduction of 1 million barrels per day, the anticipated price rise did not materialize. These developments may prompt Saudi Arabia to intensify efforts to expand its non-oil economy moving forward.
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