Saudi Arabia's non-oil sector contracted for the first time in five-and-a-half years in March 2026, with the Riyad Bank Purchasing Managers' Index (PMI) plummeting to 48.8 from 56.1 in February—a 7.3-point decline that represents the second-largest drop since the survey began in 2009.[1][2] A reading below 50 indicates contraction. This reversal ended an extended period of growth in the Kingdom's diversification efforts away from oil dependence.
Key Drivers and Impact
The contraction stemmed directly from regional geopolitical tensions disrupting supply chains and demand.[1] New orders collapsed to 45.2 from 61.8 in February, while export orders experienced their steepest decline in nearly six years.[1] The de facto closure of the Strait of Hormuz disrupted shipping routes, with some firms reporting completely halted exports and others facing severe logistical delays.[1] Business confidence weakened as clients adopted a cautious posture pending clarity on the conflict's outcome.[2] Despite the downturn, companies continued modest job creation and backlogs of work rose at their fastest rate since July 2018, suggesting temporary rather than structural constraints.[3]
Broader Context
The disruption reflects the global economic ripple effects of the Middle East conflict, which the International Monetary Fund identified as causing the largest disruption to the global oil market in history and reshaping international supply chains.[4] Saudi Arabia's non-oil sector represents 52% of GDP and is central to Vision 2030, the Kingdom's strategy to reduce oil reliance by developing tourism, manufacturing, logistics, and financial services.[5] Economists characterized March's decline as "a slowdown rather than a structural slowdown," noting that underlying business fundamentals remain supported by government spending initiatives and infrastructure investments.[3]