Saudi Arabia’s Non-Oil Sector Records Fastest Growth in Six Months

Saudi Arabia’s non-oil private sector strengthened in August, recording its fastest improvement in business conditions in six months as stronger domestic demand and rising output supported growth.

The Riyad Bank Purchasing Managers’ Index, compiled by S&P Global, rose to 53.8 in August from 53.1 in July. It was the fifth consecutive month in which the index remained above 50, indicating continued expansion. The latest reading represented the strongest improvement since February, although it remained below the survey’s long-term average of 56.8.

Output was the main driver of growth, expanding at its fastest pace in seven months. New orders also increased for a fifth consecutive month, pointing to continued strength in domestic demand. However, new export orders declined at a faster rate as regional tensions weighed on foreign demand.

The PMI data comes as Saudi Arabia’s non-oil economy continues to show resilience despite a sharp decline in oil activity.

Flash estimates from the General Authority for Statistics showed that real gross domestic product contracted 4.8% year on year in the second quarter of 2026. The decline was driven largely by a 24.7% drop in oil activities, while non-oil activities expanded 0.6%, although growth was slower than earlier in the year.

Naif Al-Ghaith, chief economist at Riyad Bank, said the latest survey showed that the non-oil economy was maintaining positive momentum during the third quarter.

He said the improvement reflected a recovery in market activity, with output reaching its strongest growth rate in seven months and moving closer to its long-term average.

Companies reported stronger demand and improved market conditions during August, while order books also increased. Some firms, however, pointed to intense competition and excess supply as obstacles to stronger sales.

Backlogs of work fell for a third consecutive month, suggesting companies had enough capacity to deal with incoming orders without creating major operational pressures.

Exports remained a weak point. New export orders fell sharply and at a faster rate than in July, with businesses citing regional tensions as a factor affecting foreign demand.

Domestic orders provided stronger support. Al-Ghaith said domestic demand remained an important source of growth and highlighted the role of investment and consumer spending in supporting the non-oil economy.

Employment increased for a second consecutive month, although job creation remained modest. Supply conditions improved as companies made greater use of local suppliers, while purchasing activity reached its strongest level since February.

Cost pressures remained elevated, driven mainly by materials and transportation. Staff costs also rose at their fastest pace since February. Output price growth slowed to its weakest level since March as competition restricted companies’ ability to pass higher costs to customers.

Business confidence improved to a seven-month high, with 20% of companies expecting activity to increase over the next year, compared with only 2% anticipating a decline. Al-Ghaith said fiscal support and development projects would remain important for private sector activity and could encourage further investment and hiring.