The rate of hiring in Saudi Arabia rose sharply in July in response to strong domestic demand, despite slower non-oil business activity growth in the region's biggest economies.
The Riyad Bank Purchasing Managers Index report dropped to 56.3 in July, from 57.2 in June, but remained well above the 50 mark that separates growth from contraction in the non-oil private sector. However, the rate of business activity growth eased to its lowest since January 2022.
"Saudi Arabia’s non-oil economy remained on a solid growth track in July, supported by higher output, new business and continued job creation," said Naif Al-Ghaith, chief economist at Riyad Bank.
The latest survey showed a historically steep rise in employment at the Arab world's biggest economy, as companies responded to higher activity and new orders by hiring more staff in July, the report said on Tuesday.
This followed June's fastest uplift in job numbers over the past 14 years.
Increased hiring was driven partly by a rise in backlogs of work, as some businesses found existing contract work and constrained capacity held up the completion of new orders, the report said.
"Employment conditions are expected to stay supportive, helping firms manage future workloads," Mr Al-Ghaith said.
However, input cost pressures continued as wages and purchasing prices continued to rise, prompting companies to raise selling prices, particularly in services, construction and manufacturing, he added.
The International Monetary Fund estimated Saudi Arabia's economy will expand at a 3.6 per cent pace in 2025 and 3.9 per cent in 2026, supported by the continued phase-out of Opec production cuts. The kingdom is expected to keep its non-oil growth above 3.5 per cent over the medium term, which mirrors the positive effects led by its Vision 2030 economic programme, the Washington-based lender said.
In July, non-oil companies' output grew on the back of existing projects and incoming new orders that helped to sustain growth, according to qualitative survey reports.
However, output growth eased to its lowest rate in three and half years due to higher competition and lower customer footfall, the survey said.
Orders also grew, driven by domestic demand and increased efforts by sales teams to fulfil orders.
However, companies faced difficulties in attracting new foreign clients, leading to a decrease in new export orders for the first time in nine months.
Cost pressures eased slightly in July, despite steep rises in labour costs. Salary expenses rose sharply, underlined by efforts to retain workers and offer bonuses.
Looking ahead, expectations for future business activity in July "softened notably" from June’s two-year high, although in general businesses expect output to increase due to "resilient market conditions" and strong client demand, the report said.
Overall optimism was the lowest recorded since July 2024.
UAE growth
Meanwhile in the UAE, non-oil business conditions grew at their weakest level since June 2021 as geopolitical tension weighed on sales, according to S&P.
The seasonally adjusted S&P Global UAE Purchasing Managers' Index dropped to 52.9 in July, from 53.5 in June, the report on Tuesday said.
"New order volumes helped firms to expand, but this trend is declining, with the latest data indicating the softest rise in incoming new work in almost four years," said David Owen, senior economist at S&P Global Market Intelligence.
Companies partly attributed this slowdown to the Israel-Iran tension that flared in June, which made some clients hesitant to spend. They also highlighted weaker tourism activity and headwinds from global trade disruption. Firms blamed more crowded markets for the increasing difficulty in securing new orders.
"Should regional tensions ease, we may see a recovery in sales growth in the coming months," Mr Owen said. "Nevertheless, the ongoing trends of rising competition, limited inventory, constrained hiring growth and relatively low confidence among surveyed firms suggest that downside risks remain elevated.”
Despite the demand slowdown, companies received higher new orders in July compared to the previous month but the upturn was the least amount recorded since August 2021.
July data showed softening of job growth at non-oil companies in the UAE.
Employment rose slightly, marking the weakest uplift in four months, coinciding with a steeper rise in backlog orders.
In Dubai, the business and tourism hub of the Middle East, the non-oil sector showed a solid recovery, with its PMI rising to 53.5 in July from 51.8 in June, driven by a sharper improvement in sales volumes.
The outlook
Looking ahead, UAE non-oil companies remained optimistic in July, driven by hopes of strengthening demand levels. However, the degree of confidence eased slightly, as some companies highlighted risks stemming from global economic uncertainty and heightened competition.
In Egypt, non-oil business conditions deteriorated for the fifth consecutive month in July, but the decline was less severe than in June. This was because companies reported softer contractions in activity and new orders, while employment increased for the first time in nine months, according to the S&P Global Egypt PMI report.
The headline PMI rose to 49.5 in July from 48.8 in June, remaining below the 50 mark. The outlook for business remained at a historically subdued level in July, as companies continued to express concerns about demand strength and broader economic uncertainty, the report said.
Optimism in July improved only slightly from June’s record low.
