Saudi Arabia’s non-oil private sector slipped into contraction in March, with business conditions deteriorating for the first time since August 2020 as conflict across the Middle East disrupted supply chains, delayed exports and hit customer demand. The Riyad Bank Saudi Arabia Purchasing Managers’ Index fell to 48.8 in March from 56.1 in February, dropping below the 50-point threshold that separates growth from contraction. Data for the survey were collected between March 5 and March 23.
The downturn marks a sharp change for an economy that has relied on strong non-oil momentum to support Crown Prince Mohammed bin Salman’s diversification drive. Output and new orders both fell for the first time in more than five years, while firms reported that geopolitical tensions had made clients more cautious and complicated cross-border trade. Reuters reported that Riyad Bank chief economist Naif Al-Ghaith described the drop as largely a reflection of short-term uncertainty linked to tensions in the region.
The most striking weakness came from demand. The new orders sub-index dropped to 45.2 in March from 61.8 in February, signalling a steep retrenchment in incoming work. Export business was especially hard hit, recording its sharpest fall in almost six years, with some firms saying shipments had been halted altogether and others citing mounting logistics problems. That pattern points to a shock extending beyond domestic caution into trade routes and delivery networks that many Gulf businesses depend on.
Supply-side pressures compounded the problem. Companies faced longer delivery times and disruption to the movement of goods as the regional conflict strained transport links. The broader energy market has also been rattled by the effective closure of the Strait of Hormuz, a chokepoint central to regional trade and oil flows. Reuters reported this week that top Gulf producers, including Saudi Arabia, have been forced to reroute or curb some exports, while crude prices have surged close to four-year highs. Although Saudi Arabia can move crude through Yanbu on the Red Sea, the wider shock to shipping and freight costs is feeding into business sentiment across the kingdom’s private sector.
March’s PMI reading also suggests that pressure is broadening across the region rather than remaining confined to one market. Egypt’s non-oil private sector weakened further in March, while France and the United Kingdom both reported manufacturing strain linked to the same conflict, ranging from delayed deliveries to rising costs and softer orders. That wider pattern strengthens the argument that Saudi Arabia’s setback is not solely a domestic issue but part of a larger supply-chain and confidence shock running through trade-exposed economies.
Even so, the Saudi picture is not one of outright collapse. The survey showed that business expectations for the year ahead remained positive, though they slipped to the weakest level since June 2020. Some firms said they were still supported by government spending plans, infrastructure development and expectations of stronger demand over the longer term. That matters because the kingdom’s diversification strategy remains anchored in major state-backed projects, tourism development, logistics investment and industrial expansion, all of which can cushion private activity when external shocks strike.
February’s reading had already hinted at some loss of momentum, even before March’s much steeper drop. At 56.1, the February PMI was the lowest in nine months, though it still pointed to solid growth. Employment had improved and project activity remained supportive, but rising competition and regional instability were beginning to weigh on sentiment. March therefore appears less like an isolated break and more like an abrupt worsening of trends that were already becoming visible.
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