Though headline GDP is reaching 12%, non-oil GDP is growing at a more moderate 5.4%
B2Cs within the FMCG and affiliated sectors (including clothing) will see performances improve further. Increasing marketing practices to establish customer awareness will help widen market share, particularly as Saudi consumers’ spending habits evolve. B2Bs in the energy, construction, and food processing sectors will see strong demand in 2023. However, MNCs must plan against protraction in margin pressures and calls for flexible credit, as business costs remain elevated.
Overview
Non-oil business activity softened slightly in September, with PMI easing from 57.7 to 56.6, driven largely by increasingly challenging global economic conditions. Input costs remain elevated due to high raw commodity prices, while output prices are lagging in a bid to remain competitive. Inflation continues to rise in Saudi Arabia, surpassing 3% in September, largely due to price increases in food and the hospitality sector (4.3% and 7.5%, respectively). Point-of-sale transactions grew 16% YOY in Q2 2022, driven by rising spending in the HORECA sector (+21%); durable goods are seeing a continued decline, with furniture and electronics spending falling by 6% and 5%, respectively.
Our View
Saudi Arabia’s stellar double-digit economic growth is driven by the oil sector. The non-oil private sector is benefiting from strong sentiment that is boosting consumption, but growth is at a more moderate pace. GDP growth in Q2 2022 reached 12% and 5.2% for the oil and non-oil segments, respectively. Private consumption will continue to grow in 2023 though at a more gradual pace. Businesses are increasing headcount and seeing higher output but are also facing high input costs, which is limiting their expansion abilities. Consumers will continue to broaden their spending but will mostly concentrate on out-of-home consumption rather than durable goods, as price sensitivity and income stagnation protracts.
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