Saudi Arabia's non-oil private sector expanded output and purchasing at the fastest pace in over four years but cost pressures, partly due to the war in Ukraine, added to the firms’ expenses, a business survey showed on Tuesday.

The seasonally adjusted IHS Markit Saudi Arabia Purchasing Managers' Index (PMI) rose to 56.8 in March, rising from 56.2 in February and staying above the 50 mark that separates growth from contraction.

The reading was also the highest recorded since November last year to signal a sharp improvement in business conditions across the non-oil private sector economy.

David Owen, Economist at S&P Global, said: "The Saudi Arabia PMI continued to signal strong growth in the non-oil economy in March, as new business and activity rose sharply in line with recovering client demand."

Supply chains also displayed strength, he said, with lead times shortening to the most in three years. Companies raised their purchasing at the fastest rate since December 2017, supporting higher capacity levels.

Three of the five sub-indices of the PMI rose over the latest survey period, most notably the Output Index which rose to its highest level since December 2017. Approximately 28% of panellists found that output had risen from the previous month, often relating this to an increase in new orders and project work.

With output and new orders rising sharply, firms raised their input purchases. The expansion in input buying was the fastest registered since December 2017 and resulted in a sharp and quicker uplift in inventory levels.

The improved supply of inputs cut the outstanding work, continuing the trend seen since February 2020. Although the decline in backlogs was only marginal, some firms sought to reduce their labour capacity, leading to the first drop in employment for a year.

Firms remained upbeat in their outlook for the future, albeit slightly less so compared to February. While some expected a rise in output over the next 12 months, the level of sentiment remained weak compared to the historical trend, S&P Global said in its report.  

(Writing by Brinda Darasha; editing by Seban Scaria)