Saudi Arabia’s construction sector returns to growth territory in May

RIYADH: Saudi Arabia’s construction industry returned to expansion in May, marking a modest recovery after two months of contraction, driven by renewed growth in new work orders, an economy tracker showed.

According to the latest Al Rajhi Capital Saudi Construction Index released by S&P Global, the reading rose to 51.2 in May from 48.5 in April, crossing the crucial 50 threshold that separates growth from contraction.

The report revealed that this growth represents the highest reading in three months, although the pace of expansion remained softer than levels observed at the start of the year.

Saudi Arabia’s construction industry has been underpinned by sustained government spending on housing, infrastructure and tourism projects, although firms continue to contend with rising input costs and regional geopolitical pressures.

“The Alrajhi Capital Saudi Construction Index signalled an encouraging return to growth for the sector in May, supported by a rebound in residential activity, renewed growth in new work orders and stronger business expectations,” said Sultan Altowaim, head of research at Al Rajhi Capital.

According to the report, the rebound was primarily fueled by a strong performance in residential building activity, which posted an index of 53.8, its first expansion since January.

Survey participants attributed this uplift to robust underlying housing demand, a recovery in client confidence, and improved market dynamics following earlier disruptions caused by regional instabilities.

Many firms reported that greater regional stability enabled the resumption of work on existing sites and the restart of new projects.

The report further said that non-residential structures also registered modest growth with an index of 50.5, supported by sustained pipelines in commercial development and industrial projects, alongside renewed investor confidence.

S&P Global, however, added that infrastructure activity contracted for the first time since the survey’s inception, registering 45.7, due to subdued orders in recent months.

Input cost pressures intensified, with the survey recording the sharpest rise in input prices since data collection began in January. Higher transportation bills and raw material costs were key drivers, while some firms noted ongoing shipping delays linked to regional geopolitical developments.

Regarding the future outlook, some 30 percent of respondents expect total activity to rise over the coming year, against only 16 percent forecasting a decline, the most positive optimism in four months, driven by factors including resilient demand, hopes of regional stability, and growth opportunities across the Kingdom linked to large-scale public development projects.

Last month, another study released by GASTAT revealed that the Business Confidence Index in the Kingdom’s construction sector stood at 55.7 in April, edging up 2.7 points from 53 in March, supported by positive outlooks on key business indicators.