NON-OIL ECONOMY OUTDOES OIL AS SAUDI DIVERSIFICATION TAKES ROOT 
Saudi Arabia’s non-oil sector outpaced the oil sector in the fourth quarter of 2022.
The non-oil economy rose 6.2% in the last quarter of the year compared to the same period in 2021, slightly ahead of the oil sector’s 6.1% gain, according to the General Authority for Statistics (GASTAT). On a quarter-on-quarter basis, non-oil rose 1.3% compared to the third quarter, eclipsing the oil sector, which posted a 0.3% decline from Q3 2022.
Government activities grew 2.9% year on year, and 0.8% quarter on quarter.
Real GDP for 2022 jumped 8.7% – a strong economic performance and one of the best among G20 nations. The annual increase was on the back of oil activities surging 15.4%, non-oil activities growing by 5.4%,and government activities expanding by 2.6%.
Transportation, storage and communication led the growth in the fourth quarter, rising 13.1%, followed by a 10.5% jump in community, social and personal services. Other mining and quarrying rose 8.4%, while finance, insurance and business services soared 6.2%. Indeed, the growth rate was broad-based with agriculture, forestry and fishing (up 6.2%), wholesale and retail trade, restaurants and hotels (5.1%), construction (4.8%), and manufacturing excluding petroleum refining (4.5%) posting strong growth during the quarter compared to the same period in 2021.
Gross domestic product at current prices stood at SAR 1.024 trillion in Q4 2022, with crude petroleum and natural gas activities accounting for 27.4%, followed by government services activities with 15.2%, and manufacturing excluding petroleum refining with 9%.
Gross fixed capital formation rose 20.6% in the fourth quarter compared to the same period last year (5.7% quarter on quarter), government final consumption expenditure grew 5.7% year on year (1.5% q-o-q), and private final consumption expenditure increased by 3.7% y-o-y (0.2% q-o-q).
On trade balance, exports grew by 3.5% year on year but decreased by 5.3% compared to the previous quarter, while imports increased by (2.3% y-o-y; 8.9% q-o-q).
BUSINESS SENTIMENT
Business and consumer sentiment is mirroring the strong growth pattern in the kingdom’s economy. S&P Global Rating’s Purchasing Managers’ Index (PMI) survey shows non-oil private sector accelerated to the highest level in almost eight years in February, with companies reporting a substantial increase in demand linked to improving economic conditions.
Companies also reported faster upturns in output, employment, and purchasing, while optimism towards the year ahead remained robust. However, the strong improvement in demand had the added effect of pushing inflationary pressures higher.
“The strong PMI reading was partly down to a sharp and accelerated increase in new business inflows. Over 42% of surveyed companies indicated that new orders had risen over the latest survey period, and often attributed this to an improvement in market conditions,” according to the report.
Companies also indicated that new projects, increased client numbers and some price promotions helped boost sales, while export orders shot up at a sharp and quicker pace. Notably, total new orders rose to the greatest level since September 2014.
INFLATION PRESSURES INCH UP
However, cost pressures are increasing too.
“The rise in purchase costs contributed to a faster uplift in overall cost pressures, as inflation picked up to the highest level since November last year,” S&P noted. “The uplift was partly driven by an increase in staff wages for the fourth month running. As a result, businesses lifted their output charges in an effort to pass rising expenses onto clients. After falling to an 11-month low in January, output price inflation accelerated markedly and was solid overall.”
Saudi Arabia's annual inflation rose 3.4% in January from 3.3% a month earlier as higher housing expenses continued to drive up living costs, according to government data. Housing, water, electricity, gas and other fuels – with a 25.5% weight of the consumer basket, the largest category – rose 6.6% from a year earlier.
"Actual rents for housing increased by 7.7% in January 2023, reflecting the increase in rents for apartments of 19.3%," GASTAT noted.
Food prices increased 4.3%, in particular meat and poultry prices (+6.1%), milk products and eggs (15.8%) were elevated. Transport prices accelerated by 3.8%, mainly due to the increase in motor car prices by 4.9%. Meanwhile, restaurants and hotels prices increased by 6.5%, due to the rise in catering service prices by 6.8%.
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