Saudi Arabia’s efforts to reduce its reliance on oil and diversify its economy encountered a setback in July, as business expansion in the country slowed down significantly. The impact of increased interest rates started affecting the non-oil sectors in Saudi Arabia, leading to an overall decline in business growth last month.
Riyad Bank reported that the Purchasing Managers’ Index for Saudi Arabia dropped from 59.6 in June to 57.7 in July. Although the index still indicates growth (as it remains above 50), the deceleration was primarily due to a moderation in new-order growth.
Despite facing fierce competition, some price reductions were observed during the month. However, business activity expansion managed to maintain similar levels to those of June.
Last year, the Saudi economy displayed strong growth, expanding by over 9 percent, surpassing other G20 members, and pushing the GDP beyond the trillion-dollar mark for the first time. However, this year’s growth trajectory fell short of expectations due to declining oil prices and production, leading some experts to predict a contraction.
The Saudi riyal is pegged to the U.S. dollar, necessitating close monitoring of decisions made by the U.S. Federal Reserve. Despite lower inflation in Saudi Arabia compared to the United States over the past two years, the Fed has been raising interest rates aggressively to control inflation, including a 25 basis point increase last month.
Additionally, in an effort to bolster crude prices, Saudi Arabia announced on Thursday that it would extend oil production cuts for at least another month, until the end of September. The anticipated Saudi production for September is around 9 million barrels per day (bpd).
Crown Prince Mohammed Bin Salman has directed significant investments into various sectors like tourism, sports, and electric vehicles. However, the country’s exports continue to heavily rely on oil, accounting for more than 90 percent of its total exports.
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