Saudi Non-Oil Private Sector Maintains Expansion Despite Cooling Momentum

Saudi Arabia’s non-oil private sector remained firmly in expansion territory in January, despite signs of moderating growth momentum. The Riyad Bank Saudi Arabia Manufacturing PMI eased to 56.3 in January 2026, down from 57.4 in December, marking the lowest reading in six months and slipping slightly below the index’s long-term average.

While the slowdown signals a softer pace of expansion, the headline figure still points to robust operating conditions, underpinned by resilient domestic demand and sustained business activity. Output continued to rise at a solid pace, while new orders increased sharply, reflecting ongoing strength in local consumption and investment activity.

External demand also provided support. New export orders expanded at the fastest pace since October 2025, highlighting improving trade dynamics and stronger regional and international demand for Saudi manufactured goods.

Labor market conditions remained favorable, although momentum cooled. Employment growth stayed strong, but the pace of hiring slowed to its weakest level in a year, following a peak in October. This suggests firms are becoming more selective in workforce expansion amid rising cost pressures.

Input cost inflation intensified for a second consecutive month, driven by higher prices for metals, raw materials, fuel, and technology, alongside increased staffing expenses. The acceleration in cost pressures could weigh on profit margins in the near term and may prompt companies to reassess pricing strategies.

Business sentiment improved compared to December, signaling greater confidence in near-term activity. However, optimism remains below its long-term average, indicating a cautious outlook for 2026 as companies balance growth opportunities with inflationary pressures and global economic uncertainties.

For investors, the latest PMI data reinforce the narrative of continued diversification momentum in Saudi Arabia’s non-oil economy, supported by domestic demand and export growth, while highlighting emerging risks from rising input costs and a gradual cooling in hiring activity.