Saudi Arabia’s non-oil private sector expanded at its strongest pace in three months in May, helped by firmer domestic demand, improved operating conditions and signs that supply chains were adjusting after earlier disruption.The seasonally adjusted Riyad Bank Saudi Arabia Purchasing Managers’ Index, compiled by S&P Global, rose to 52.8 in May from 51.5 in April, remaining above the 50-point mark that separates expansion from contraction. The reading pointed to a moderate but clearer recovery in business conditions after March’s fall below the neutral threshold, when regional conflict weighed heavily on output, orders and logistics.
The latest survey showed that output growth accelerated to a three-month high as companies reported normalising work conditions, revived contracts and stronger local demand. Firms across services, construction, wholesale, retail and manufacturing benefited from a pick-up in activity, though the improvement was uneven and still constrained by cautious client spending.
New orders increased only modestly, with the sub-index rising to 52.0 in May from 51.5 in April. While that marked a further move into expansion territory, the pace remained below the long-run trend, suggesting that companies are still facing delays in investment decisions and a degree of caution among customers. Domestic orders continued to provide the main support, reinforcing the role of local consumption, infrastructure projects and government-backed investment in sustaining private-sector activity.
Export demand remained the weakest part of the picture. New export orders fell sharply for a third consecutive month as businesses faced shipping disruption, higher freight and fuel costs, geopolitical uncertainty and stronger international competition. The pace of decline eased only slightly from April’s survey-record contraction, indicating that cross-border demand remains vulnerable to regional tensions and logistics bottlenecks.
Supply-side conditions improved in May, partly offsetting weak export momentum. Suppliers’ delivery times shortened for the first time in three months as more firms relied on local vendors and adjusted procurement networks. That shift helped companies rebuild operational stability, though it also underlined how businesses are trying to reduce exposure to external transport disruption.
Backlogs of work rose for an eleventh consecutive month, although only moderately. The continued accumulation of unfinished business suggests that capacity remains stretched in some areas despite better delivery conditions. Companies maintained hiring activity to support workloads, but employment growth remained measured rather than aggressive, reflecting caution over future demand and cost pressures.
Price pressures continued to influence business decisions. Companies faced elevated costs for materials, fuel and transportation, with earlier conflict-related increases still filtering through the supply chain. Some firms passed part of those costs to customers, while others absorbed them to protect sales volumes in a competitive market. The balance between higher input costs and subdued pricing power remains a key risk for margins.
Business confidence stayed muted despite the stronger headline reading. Some companies expected conditions to improve over the coming year, supported by public investment, tourism, construction and broader Vision 2030 programmes. Others remained wary of geopolitical tensions, inflation and the impact of higher logistics costs on consumer and corporate spending.
The May PMI adds to evidence that Saudi Arabia’s diversification drive continues to support activity outside hydrocarbons, even as the operating environment has become more complex. Official flash estimates showed real gross domestic product grew 2.8 per cent year on year in the first quarter of 2026, with non-oil activities also rising 2.8 per cent. Oil activities increased 2.3 per cent and government activities grew 1.5 per cent over the same period.
On a seasonally adjusted quarter-on-quarter basis, real GDP contracted 1.5 per cent in the first quarter, largely because of a decline in oil activities. Non-oil activities still edged up 0.2 per cent, showing resilience but also a slower pace than the strong growth rates seen through much of the previous year.
The wider economic backdrop remains mixed. Saudi Arabia’s non-oil sector is benefiting from sustained government spending, major project activity, tourism expansion and private-sector reforms. At the same time, regional conflict, freight disruption and elevated costs are testing business confidence and export competitiveness.
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Saudi Arabia