Saudi Non-Oil Sector Sustains Growth Amid Economic Headwinds

A recent survey published on Tuesday revealed that Saudi Arabia's non-oil private sector activity expanded significantly in July, propelled by improved domestic demand. Production remained strong, despite a decline in export sales. The Riyadh Bank Saudi Arabia Purchasing Managers’ Index (PMI), compiled by S&P Global, decreased to 53.1 in July from 53.3 in June. Readings above 50 indicate an expansion in activity. Naif Al-Ghaith, a senior economist at Riyadh Bank, stated, "The latest surveys indicate that domestic demand is gradually improving as market conditions return to normal following recent regional disturbances, supporting sustained increases in both output and new orders."

The pace of new business growth slowed compared to June and remained modest by historical standards. The export situation continued to be challenging, with international orders declining for the fifth consecutive month due to high shipping costs and competitive pressures. However, the rate of contraction eased to its lowest level in the current series. Employment in the non-oil private sector saw a slight improvement after stagnating in June, though the rate of job creation remained significantly below levels recorded earlier in the year. Input costs increased at their slowest rate in four months, though still sharply, and labor costs rose at their strongest pace in five months. Business confidence for the next 12 months decreased from its five-month peak recorded in June.

In mid-July, Fitch Ratings affirmed Saudi Arabia's credit rating at "A+" with a stable outlook. The agency noted that the country's credit rating reflects its strong financial position and significant financial reserves, with government debt and net sovereign foreign assets notably stronger than the averages for "A" and "AA" rated countries. The International Monetary Fund (IMF) raised its forecast for Saudi Arabia's economic growth in 2027 by 1.0 percentage point to 5.5 percent, anticipating the economy to grow by approximately 1.7 percent by the end of the current year.

In late May, Moody's affirmed Saudi Arabia's credit rating at "Aa3" with a stable outlook, highlighting the Riyadh economy's resilience against the repercussions of the Iran conflict and disruptions to navigation through the Strait of Hormuz. In March, S&P Global Ratings affirmed Saudi Arabia's long- and short-term sovereign credit ratings in foreign and local currencies at "A+/A-1" with a stable outlook. S&P stated that this stable outlook reflects its confidence in Saudi Arabia's ability to navigate the consequences of the current regional conflict, based on its capacity to reroute oil exports to the Red Sea, utilize its large oil storage capacity, and increase oil production after the conflict ends.

Saudi Arabia continues to implement its Vision 2030 strategy, aimed at diversifying the economy away from oil, alongside reducing the budget deficit and increasing focus on enhancing spending efficiency after years of expansion. Vision 2030 represents a long-term strategic framework to boost the private sector's role, increase productivity, stimulate investment, and build a more sustainable and competitive development model, supporting balanced growth and economic stability in the long run. The Saudi Ministry of Finance, according to the 2025 general budget, expects the economy to grow by 4.6 percent in 2026, before reaching 3.7 percent in 2027.