Saudi Non-Oil Expansion
Saudi Non-Oil Private Sector Expands to Four-Month High, Driven by Strong Domestic Demand
Key Points
Backlogs of work declined for the first time in a year, indicating firms were able to absorb rising workloads without creating capacity constraints.
Geopolitical developments, including the Iran war and a June ceasefire, opened the Strait of Hormuz to shipping, which could ease regional trade bottlenecks for Gulf economies.
IMF projections indicate Saudi Arabia’s economy will grow about 2% in 2026, signaling a slower pace from earlier estimates but continuing momentum supported by domestic demand and public spending.
The future production index rose to its highest level since January, signalling improved expectations for future output and heightened confidence among firms.
Saudi Arabia's non-oil private sector grew at its fastest pace in four months in June, with the Riyad Bank Purchasing Managers' Index (PMI) climbing to 53.3, according to Maaal. Any reading above 50 signals expansion. The jump was fueled by stronger domestic demand, new project approvals, and rising consumer spending.
Output rose sharply, with roughly 18% of firms reporting higher production. Business confidence also improved, pushing the future production index to its highest level since January, per TradingView.
New Orders and Project Approvals Drive Output Higher
Domestic demand was the engine behind June's growth. Firms pointed to fresh project approvals and renewed sales activity as key drivers. Consumer spending picked up, and investor confidence improved. Together, these pushed new orders higher and lifted overall output for the month, according to Maaal.
Backlogs of work actually fell for the first time in a year. That means firms kept up with rising demand without falling behind. It signals that the sector has enough capacity to handle the current pace of growth without strain.
Export Orders Fall for a Fourth Straight Month
Not all the data was positive. Export orders shrank for the fourth month in a row, according to TradingView. Two problems are driving this: logistics bottlenecks are slowing shipments, and foreign competition is intensifying. Saudi exporters are losing ground in some overseas markets even as domestic sales grow.
Employment stayed roughly flat. Firms chose to absorb higher workloads with existing staff rather than hire. Companies also kept tight control over their inventories, avoiding the buildup of unsold goods.
Hormuz Ceasefire Could Ease Gulf Trade Bottlenecks
A geopolitical shift may help. A June ceasefire between Iran and other parties reopened the Strait of Hormuz to shipping. The strait is a critical route for Gulf trade. If it stays open, it could reduce the logistics problems that have been dragging down Saudi export orders, according to Maaal.
Regional tensions easing and steady public spending are seen as key supports for ongoing momentum, analysts note. The future production index rising to a six-month high suggests firms believe the good conditions will continue into the months ahead.
IMF Projects 2% Growth for Saudi Economy in 2026
The broader Saudi economy is on a slower but steady path. The IMF projects growth of about 2% in 2026. That is down from earlier, faster estimates. But analysts say domestic demand and government spending should keep the economy moving forward, even as the pace moderates from recent highs, according to Maaal.
The non-oil sector is central to Saudi Arabia's Vision 2030 plan, which aims to reduce the country's reliance on oil revenue. June's PMI reading of 53.3 is an encouraging sign that diversification efforts are gaining traction, even if export challenges remain.
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