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Saudi Arabia’s non-oil private sector slipped into contraction in March for the first time in nearly five years, as escalating conflict in the Middle East disrupted supply chains and dampened business confidence.
The seasonally adjusted Riyad Bank Saudi Arabia Purchasing Managers’ Index (PMI), compiled by S&P Global, dropped sharply to 48.8 in March from 56.1 in February. Any reading below 50 signals contraction.
The downturn marks the first decline in non-oil activity since August 2020, when the COVID-19 pandemic weighed heavily on global economies.
According to Naif Al-Ghaith, Chief Economist at Riyad Bank, the slide reflects heightened short-term uncertainty linked to regional geopolitical tensions. He noted that businesses adopted a cautious stance, leading to a pause in new orders and a moderation in output.
Data from the survey showed that both output and new orders contracted during the month. The new orders sub-index plunged to 45.2 from 61.8 in February, while export demand recorded its steepest decline in nearly six years. Some firms reported a complete halt in exports, while others cited mounting logistical challenges.
Supply bottlenecks intensified despite weakening demand, raising concerns that disruptions could persist as long as tensions continue to affect the strategic Strait of Hormuz, a critical global shipping route.
Despite the setback, business expectations for the next 12 months remained broadly positive, although confidence fell to its lowest level since June 2020. Firms expressed cautious optimism, banking on sustained government spending, infrastructure expansion and a gradual rebound in demand over the medium to long term.
The March PMI reading underscores the vulnerability of the Kingdom’s diversification drive to external shocks, even as policymakers continue to push reforms aimed at strengthening the non-oil economy.
