Business growth in Saudi Arabia decelerated in July as rising interest rates started catching up with the kingdom’s non-oil industries.
(Bloomberg) — Business growth in Saudi Arabia decelerated in July as rising interest rates started catching up with the kingdom’s non-oil industries.
A purchasing managers’ index for Saudi Arabia stood at 57.7, down from 59.6 in June, according to Riyad Bank. While still far above the 50-mark separating growth from contraction, the slowdown was mainly driven by weaker growth for new orders.
“The effects from tighter monetary conditions have started to be mildly felt across the kingdom’s private sector,” said Naif Al-Ghaith, chief economist at Riyad Bank. “To some extent, the slowdown in business activity was expected and owed to business cycle dynamics and ongoing market repricing adjustments.”
Intense competition led to price discounting during the month. Still, business activity growth held close to levels seen in June.
The Saudi riyal is pegged to the US dollar and the kingdom’s central bank has to follow the Fed’s decisions closely, even though Saudi inflation has been well below that of the US in the past two years. The US Federal Reserve has hiked interest rates to lower inflation, with its latest move of 25 basis points last month.
The Saudi economy grew almost 9% in 2022, faster than that of any other other member of the Group of 20 and leading gross domestic product to surpass $1 trillion for the first time. Growth has slowed this year as oil prices and production have dropped, with some economists even forecasting a contraction.
Saudi Arabia has said Thursday that it will extend its oil supply cuts — meant to boost prices — at least until the end of September.
Read More: Saudis Extend 1 Million-Barrel Oil Cut, Say It Can Be Deepened
Crown Prince Mohammed bin Salman, the de facto ruler, is spending trillions of dollars to diversify the economy, with investments in everything from tourism to sports and electric vehicles. While that’s keeping the non-oil economy buoyant, , the country remains heavily dependent on the commodity, which accounts for around 90% of exports.
Other highlights from the report:
- The strongest pace of output expansion was reported in manufacturing and construction
- Cost pressures eased from June, with inflationary burdens rising at the softest rate since late 2022
- Business sentiment eased but firms remained optimistic about new-project spending by the government
- Employment levels rose for the sixteenth consecutive month
(Updates with Saudi Arabia’s currency peg in fourth paragraph.)
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