Overview
Saudi Arabia's non-oil private sector shrank in March, marking the first contraction since the height of the 2020 pandemic, according to the Riyad Bank Saudi Arabia Purchasing Managers' Index (PMI). The seasonally adjusted PMI fell to 48.8 in March from 56.1 in February, moving below the 50.0 no-change threshold and signaling a reduction in overall private sector activity.
Demand collapse and supply challenges
The downturn was led by a pronounced drop in new orders. The new orders subindex plunged to 45.2 in March from 61.8 in February. Riyad Bank's chief economist, Naif Al-Ghaith, said the "softer reading" reflected heightened geopolitical uncertainty, adding that many clients have assumed a "wait-and-see" approach to business decisions.
Export demand experienced its steepest fall in almost six years, with numerous companies reporting that cross-border trade had effectively ceased. The disruption has been tied to the effective blockade of the Strait of Hormuz, which continues to hinder logistics and trade flows.
On the supply side, pressures intensified even as output slowed. Firms reported that lead times were lengthening despite the moderation in production, a paradox attributed to the maritime conflict that has strained shipping and supply-chain operations.
Implications for fiscal targets and outlook
The abrupt stall in the private sector creates a notable obstacle for Saudi Arabia's 2026 fiscal targets. The economy's strategy has relied heavily on non-oil growth to diversify government revenue, making a private-sector contraction particularly concerning for those targets.
Forward-looking sentiment among businesses also weakened. The 12-month business outlook reached its lowest point since June 2020. Nonetheless, several firms pointed to the government's ongoing commitment to large-scale infrastructure projects and sustained public spending as a possible floor beneath the downturn.
Warnings from analysts
Analysts cautioned that if the regional "energy and shipping blockade" continues into mid-April, the Kingdom could face "non-linear" risks to growth similar to scenarios being modeled elsewhere. Such a persistence, they warned, might translate into more severe and non-proportional impacts on domestic activity.
This report focuses on the statistics and commentary released in the latest Riyad Bank PMI and reflects the information provided by participating firms and analysts.