Saudi Arabia’s non-oil private sector activity declined in March, marking its first contraction since August 2020, as the ongoing conflict involving Iran disrupted supply chains, a recent business survey revealed. The seasonally adjusted Riyad Bank Saudi Arabia Purchasing Managers’ Index (PMI), prepared by S&P Global, fell sharply to 48.8 in March from 56.1 in February. A PMI reading below 50 indicates a contraction in business activity.
Naif Al-Ghaith, chief economist at Riyad Bank, explained that the shift into contraction territory primarily reflected short-term uncertainty caused by geopolitical tensions in the region. He noted that the softer reading was driven by a halt in new orders as clients adopted a more cautious approach. Export orders experienced a significant decline, with some companies reporting a temporary suspension of cross-border transactions, which in turn led to a reduction in output.
Both output and new orders contracted for the first time since August 2020, when the COVID-19 pandemic severely impacted global economies. The new orders subindex dropped dramatically to 45.2 in March from 61.8 in February. Export demand weakened considerably, with new export orders experiencing their steepest decline in nearly six years. Several firms indicated that exports had been completely stopped, while others faced increasing logistical challenges.
Supply chain pressures intensified even as demand softened, a situation expected to persist as long as the Strait of Hormuz remains effectively blocked due to the conflict. Meanwhile, business sentiment for the upcoming 12 months stayed positive overall, despite falling to its lowest level since June 2020. Some companies remain optimistic about government spending, infrastructure projects, and a potential recovery in demand over the longer term.
