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Growth in non-oil business activity in Saudi Arabia has slowed down to the lowest in two and a half years, based on the latest PMI data from the kingdom.

The Riyad Bank Saudi Arabia Purchasing Managers' Index reading for June came in at a seasonally adjusted 55, Reuters reported. This was down from 56.4 for May and while a decline, the reading demonstrated a healthy growth rate.

“Looking at the second quarter as a whole, the growth figures for Q2 still indicate a positive outlook for non-oil GDP in Saudi Arabia, with expectations of growth exceeding 3%,” said the chief economist of Riyadh Bank, Naif Al-Ghaith.

Saudi Arabia has been working hard to boost its non-oil economy and it succeeded in increasing the share of such activities in budget revenues to 50% last year. The kingdom’s non-oil economy was valued at some $453 billion in that year, in constant prices.

As Saudi Arabia continues to keep a lid on oil production, however, its oil activity’s contribution to the budget is suffering. The non-oil sector and government activities grew in the first quarter of 2024, but a 10.6% decline in oil activities – as the Saudis are limiting oil production at 9 million barrels per day – dragged down the Kingdom’s GDP by 1.8% compared to the same period of 2023, Saudi Arabia’s General Authority for Statistics said in May.

The lid on oil production will remain in place for the observable future, it seems, based on the latest oil price developments and outlook. Brent crude has been inching higher, on geopolitical concerns about the Middle East and expectations of robust demand in the U.S. but is still lower than where Riyadh needs it to be.

Even a drop in exports in June that accounted for half the global oil export draw of 1 million bpd did not accelerate the price rise. These developments may prompt Riyadh to double down on expanding its non-oil economy going forward.

By Irina Slav for Oilprice.com