Saudi Arabia's non-oil businesses face troubles as growth slows in July

Saudi Arabia's efforts to diversify its economy beyond oil face a setback as business expansion in the nation experienced a notable deceleration in July. The impact of elevated interest rates began to affect Saudi Arabia's non-oil sectors, contributing to an overall slowdown in business growth last month.

According to Riyad Bank, the Purchasing Managers' Index for Saudi Arabia declined from 59.6 in June to 57.7 in July. While the reading remains comfortably above 50, indicating growth rather than contraction, the deceleration can be attributed to a moderation in new-order growth.

Amidst intense competition, price reductions were observed during the month, yet business activity expansion remained on par with June's levels.

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However, in 2022, the Saudi economy demonstrated robust growth, expanding by over 9 percent, outpacing other G20 members, and propelling the GDP beyond the trillion-dollar mark for the first time. Although this year's growth trajectory has fallen short of expectations due to declining oil prices and production, some experts now even anticipate a contraction.

Saudi Arabia's currency, the riyal, is fixed to the U.S. dollar, necessitating close monitoring of decisions made by the U.S. Federal Reserve. This linkage persists even as Saudi inflation has remained notably lower than that of the United States over the past two years. The Fed has raised interest rates aggressively over the past year, most recently by 25 basis points last month, to lower inflation.

Furthermore, in a bid to bolster crude prices, Saudi Arabia announced on Thursday its decision to extend oil production cuts for at least an additional month, until the end of September. Anticipated Saudi production for September hovers around 9 million barrels per day (bpd).

Crown Prince Mohammed Bin Salman has directed substantial investments into diverse sectors such as tourism, sports, and electric vehicles. Nonetheless, the country's exports remain heavily reliant on oil, which accounts for more than 90 percent of its total exports.

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