Saudi SMEs Hire at 10-Month High on Expansion Plans and Strong Demand Under Vision 2030

Saudi Arabia’s SME sector posted its strongest employment growth in ten months as December activity underscored ongoing expansion driven by long-term business plans and robust domestic demand. The Riyad Bank Saudi Arabia SME Purchasing Managers’ Index (PMI) registered 56.9 in December, a touch softer than November’s 57.1 yet still well above the neutral 50 threshold that separates expansion from contraction. This performance signals sustained momentum within the small and medium enterprise arena, reinforcing its central role in the Kingdom’s broader economic strategy. The results come as policymakers continue to push the SME segment to the fore as a core pillar of diversification under Vision 2030, aimed at reducing oil-dependency and fostering a more resilient, innovation-driven economy.

This opening snapshot aligns with the broader narrative around Saudi Arabia’s economic transformation, where the SME ecosystem is not only expanding but doing so with a more ambitious tempo. The December PMI reading underscores a favorable operating climate for SMEs, reflecting the combination of expanding output, rising new business opportunities, and a supportive macro environment. Naif Al-Ghaith, chief economist at Riyad Bank, framed the December results within a quarterly context, noting that the fourth-quarter PMI averaged 56.8 — the highest quarterly reading since the end of 2023 — which points to a sustained upturn in activity through late 2023. He described the December data as signaling a robust SME performance and a resilient economic environment that is translating into tangible gains in output and new work intake. The interpretation put forward by Al-Ghaith frames the December data as a meaningful indicator of momentum, rather than a temporary blip, in a period marked by persistent domestic demand.

In the December report, the employment surge amid SMEs is attributed to sharp increases in both output and incoming new work. The data suggest that SMEs were not only producing more but also attracting a higher volume of new assignments, which, in turn, supports hiring and wage growth. The price and cost environment presented a mixed backdrop: while input costs rose — driven by salary increments and higher raw material prices — inflation pressures eased slightly compared with the prior month. This dynamic implies that SMEs navigated a more favorable cost trajectory, even as cost pressures persisted, allowing for a pragmatic balancing of wage growth with price discipline. The net effect appears to have supported a continued expansionary stance among SMEs, reinforcing confidence in ongoing operations and the ability to translate demand into employment and investment.

The December PMI signal sits within a broader, optimistic frame for the SME landscape, where business confidence reached its highest level since March and marked three consecutive months of improving expectations. Within this setting, Al-Ghaith emphasized the alignment of SME momentum with Vision 2030’s long-run objectives, pointing to the role of strong SME performance in driving sustainable employment, inclusive growth, and broader diversification of the economy. The December results also reflect a positive feedback loop: a thriving SME ecosystem stimulates output and job creation, which in turn supports consumer spending and investment in new capacity, thereby reinforcing the cycle of growth. The narrative thus centers on the SME sector as a robust engine of the non-oil economy, contributing to broader resilience and economic security in Saudi Arabia.

Section 1: Economic Momentum and December PMI Details

The December PMI reading of 56.9 confirms continued expansion in the SME sector, even as the pace cooled slightly from November’s 57.1. The divergence, a modest 0.2-point decline, nonetheless preserves a strong expansion signal well above the 50-point threshold that denotes growth in manufacturing and services activity. For policymakers and market participants, this narrow month-to-month shift suggests a steady trajectory rather than a volatile spike, reinforcing confidence in the medium-term outlook for SMEs amid an improving demand environment. The PMI’s sustained strength highlights the interplay of domestic demand, business investment, and export-related opportunities, even as global economic conditions present a mixed backdrop.

A closer reading of the December results shows that the drivers of the SME expansion remain rooted in long-term business plans and a rising pipeline of projects. SMEs reported stronger output levels and a backlog of incoming new work that supported hiring and wage dynamics. This combination suggests a firming in both capacity utilization and order intake, signaling a healthy balance between supply constraints and demand growth. In particular, the PMI’s structure typically reflects sub-indices for output, new orders, employment, supplier deliveries, and inventories. When combined, these components provide a composite gauge of economic health for the SME sector. The December data, showing robust output and accelerating new work, indicate that SMEs are actively investing in capacity and capabilities to meet rising demand.

The quarterly perspective adds another layer of interpretation. The fourth-quarter average PMI of 56.8 stands as the highest quarterly figure since late 2023, underscoring a sustained improvement in performance. This pattern implies that SMEs are not merely benefiting from transient cyclical factors but are experiencing a more durable expansion phase. The persistence of strong PMI readings across three consecutive months signals that the SME environment remains supportive of growth, even as some cost pressures persist. It also suggests that the sector’s resilience is evident in both manufacturing and services-oriented SMEs, with cross-sector demand contributing to the overall vitality of the SME economy.

From a macroeconomic standpoint, the SME PMI readings echo broader structural trends aligned with Vision 2030. The approach to diversification hinges on enabling SMEs to scale, innovate, and connect with larger value chains. The PMI data offer a tangible proxy for the health of those dynamics, illustrating how policy reforms, access to finance, regulatory improvements, and digital transformation are translating into stronger SME performance. In the conversation about governance and development, the PMIs serve as a yardstick for the vibrancy of entrepreneurial ecosystems, where the ability to translate planning into execution is critical for sustainable growth.

Looking at the qualitative side, commentary from Riyad Bank’s Naif Al-Ghaith highlights the resilience and optimism permeating the SME community. He framed the December results as a testament to the thriving economic environment, characterized by higher output and increased incoming work. The forward-looking tone is reinforced by the persistent emphasis on long-term expansion plans as a key driver of employment growth. In this sense, the December data are not merely a snapshot of current activity but an indication of the confidence SME owners have regarding upcoming opportunities and the ability to scale operations in the months ahead.

Section 2: Employment Growth and Demand Dynamics

A central takeaway from December is the notable acceleration in employment within SMEs, driven by the surge in output and the inflow of new business. The surge in hiring reflects a combination of higher demand and a proactive approach by SMEs to build capacity in anticipation of sustained growth. The employment uptick aligns with the PMI’s employment sub-index trend, which shows that staffing levels rose at an accelerated pace — the strongest since February — signaling that SMEs are prioritizing recruitment to support expanded activity. The relationship between output growth, new orders, and employment is fundamental in understanding how SMEs are navigating a higher activity environment. When output rises and new orders expand, SMEs commonly respond by increasing headcount to maintain service quality, meet production targets, and avoid bottlenecks that could hamper growth.

The December PMI results show another layer of demand dynamics. SMEs reported strong demand conditions, driven by both business-to-business and consumer-driven activities. The uptick in consumer spending is particularly relevant in the context of domestic demand and the broader retail, services, and manufacturing sectors. A supportive economic climate, combined with a rising willingness among firms to invest in capacity, tends to reinforce hiring and wage growth. This is notable in a period where inflation pressures have eased mildly, providing some relief to business costs while maintaining the need for competitive compensation to attract and retain skilled labor.

The analysis emphasizes that the employment surge occurred despite higher input costs, including salary increases and rising raw material prices. This point underscores the delicate balance SMEs must strike: expanding employment and capacity while managing cost pressures. The cost environment, while not cooling uniformly, indicates a partial easing that may help firms sustain hiring momentum without eroding margins. In practical terms, this means SMEs are adopting strategic hiring practices, targeting roles that directly support growth initiatives and production efficiency, while leveraging productivity improvements and digital tools to offset rising costs. The net effect is a more dynamic SME labor market that contributes to overall macroeconomic resilience.

Section 3: Output, New Work, and Spending Trends

Turning to output and new work, the December PMI data point to a period of stronger activity and a robust inflow of projects that feed into the positive employment outlook. SMEs reported higher output levels and stronger incoming new work, signaling that demand conditions are favorable and that firms are capitalizing on the momentum created by domestic demand and long-term expansion plans. The influx of new work is a critical driver of the observed employment expansion, as firms hire to ramp up production, service delivery, and project execution. The output gains are a barometer of operating leverage, where existing capacity is mobilized more intensively to meet rising demand, resulting in broader economic spillovers across suppliers, service providers, and downstream industries.

Demand conditions in December were described as broadly supportive, with both business and consumer spending playing pivotal roles. The strengthening demand environment helps explain the PMI’s upward trajectory in key sub-indices and the overall upbeat sentiment among SME managers. When demand strengthens, SMEs typically experience higher utilization rates, better revenue visibility, and improved capacity planning, which in turn supports sustained investment in equipment, technology, and human capital. The December results thus reflect a positive feedback loop: stronger demand enabling higher output and employment, which then reinforces spending on inputs and expansionary investments.

For decision-makers, the December data provide evidence that the SME segment remains a wellspring of growth within Saudi Arabia’s non-oil economy. The PMI’s takeaway is that SMEs are navigating a favorable business climate, with output growth and incoming work reinforcing confidence in continued expansion. The evidence of robust demand, coupled with a supportive macroeconomic environment and effective policy signals, strengthens the case for continuing to prioritize SME development as a central pillar of Vision 2030’s diversification strategy. The results also suggest that the non-oil economy is poised to retain momentum, given the synergy between domestic demand, project pipelines, and the capacity-building activities that SMEs undertake in response to growth prospects.

Section 4: Inflation, Costs, and Pricing Dynamics

Inflation and input costs form a nuanced backdrop to the December SME PMI readings. While SMEs faced higher input costs, including salary increases and rising raw material prices, inflation pressures eased slightly compared with the prior month. This juxtaposition indicates a mixed pricing environment, where cost pressures persist but are not intensifying at the same pace, allowing SMEs some room to manage pricing strategies and maintain margins. The moderation in inflation pressure provides some relief for SMEs as they balance the need to attract workers with the imperative to preserve competitiveness in pricing and profitability.

The cost dynamics influence strategic decisions in hiring, wage adjustments, and procurement. On one hand, higher salaries and materials costs exert upward pressure on cost of goods sold and operating expenses. On the other hand, the easing of inflation supports real income and consumer purchasing power, which can expand domestic demand and sustain revenue growth for SMEs. The net effect is a complex environment in which SMEs must optimize cost structures, leverage productivity gains, and pursue efficiency-enhancing investments to sustain growth without compromising profitability. These considerations are central to how SMEs approach budgeting, forecast accuracy, and risk management in a year marked by ongoing macro uncertainty and shifting price pressures.

From a policy perspective, the inflation profile matters for assessing the effectiveness of macroeconomic stabilization and SME-focused support measures. If inflation stabilizes or trends downward, credit conditions may improve and access to financing for SMEs can become more favorable. This, in turn, can encourage further investment in technology, training, and process improvement that bolster long-term productivity. The December PMI’s inflation-related notes, while brief, contribute to a broader understanding of how SMEs are navigating a cost environment that remains challenging yet manageable, reinforcing the idea that strategic investment and efficiency are critical to sustaining growth in the SME sector.

Section 5: Business Confidence and Outlook

Business confidence among SMEs reached its highest level since March, marking three consecutive months of improved expectations. This rising confidence signals a constructive outlook among SME leaders about the future, supported by indicators of rising activity, expanding output, and a healthy demand trajectory. Confidence is a forward-looking construct that reflects the perceived ability of SMEs to secure new orders, manage costs, and sustain employment growth in the face of evolving market conditions. The sustained optimism across multiple months indicates that SME owners and managers expect continued expansion, with opportunities for new projects and partnerships on the horizon.

Al-Ghaith highlighted that the optimistic path aligns with Vision 2030’s broader objectives. The idea is that a resilient and productive SME sector forms the backbone of a diversified economy that prioritizes sustainable employment and inclusive growth. The confidence metric thus gains significance beyond the numerical PMI reading: it serves as a barometer of strategic intent within the SME community, signaling readiness to scale, innovate, and participate in larger value chains. The sense of positive momentum also reinforces the case for ongoing policy support, particularly measures aimed at easing access to finance, improving regulatory environments, and fostering digital transformation that can unlock greater productivity and competitiveness for SMEs.

This confidence narrative dovetails with the broader macro environment where non-oil growth is increasingly visible. An ecosystem that supports SMEs in pursuing longer-term expansion projects not only drives employment but also strengthens domestic demand, innovation, and export capabilities. Such dynamics are central to economic resilience, particularly in a region where energy prices and global demand cycles can influence macroeconomic stability. The December PMI thus serves as a forward-looking indicator, signaling that SMEs are prepared to convert favorable sentiment into concrete actions, such as investment in technology, workforce development, and strategic partnerships that accelerate growth.

Section 6: Vision 2030, Diversification, and SME Policy Implications

The December SME PMI results sit squarely within the Vision 2030 framework, which emphasizes diversification away from oil dependence and a strong, sustainable SME ecosystem. The data reinforce the narrative that SMEs are pivotal to achieving inclusive growth and broad-based employment opportunities. The emphasis on SMEs, including a notable 45 percent share of leadership by women entrepreneurs, underscores the social and economic dimensions of the diversification strategy. The growth trajectory of SMEs contributes to a more balanced economy, where employment is generated not only in traditional sectors but also in innovative, technology-enabled, and service-oriented enterprises.

From a policy angle, the December performance validates ongoing efforts to strengthen the SME segment. This includes measures to enhance access to finance, streamline regulatory processes, and promote digital adoption that increases efficiency and integration into value chains. The PMI results offer feedback to policymakers about what is working well and where improvements may still be needed. For instance, the robust demand and output growth suggest that financing conditions remain supportive, but ongoing attention to wage dynamics and input costs is essential to ensure that profitability supports continued expansion. The emphasis on long-term expansion plans as drivers of employment growth also points to the importance of fostering a climate that rewards investment, innovation, and scalability within the SME sector.

Within the Vision 2030 framework, the SME performance has implications for regional and global competitiveness. By strengthening SMEs, Saudi Arabia can improve its resilience to external shocks, enhance its capacity to generate high-value employment, and position itself as a hub for entrepreneurship, innovation, and investment. This aligns with broader national objectives to transform the economy into one that thrives on domestic demand, exports of value-added goods and services, and a diversified industrial base. The December PMI data thus contribute to a growing body of evidence that suggests a constructive path toward a more dynamic, inclusive, and sustainable economy.

Section 7: Women Entrepreneurship and SME Ecosystem Growth

A notable feature highlighted by the December reporting is the leadership role of women within the SME space, with 45 percent of SMEs now led by women entrepreneurs. This statistic reflects a significant and meaningful shift toward broader gender representation in the entrepreneurial landscape. The implications extend beyond the numbers; they signal progress in access to capital, community leadership, and the diversification of management styles that can drive innovation and resilience within SMEs. Women-led SMEs contribute to inclusive growth by expanding opportunities, improving labor market participation, and supporting a more diversified business ecosystem. The December PMI results, when viewed through this lens, suggest that the SME sector in Saudi Arabia is becoming more inclusive, with leadership structures that can influence decision-making, risk management, and the adoption of new technologies.

This emphasis on women leadership aligns with Vision 2030’s aspirations for inclusive economic growth and social development. It suggests that policy measures aimed at enabling female entrepreneurship — including education and training, flexible work arrangements, access to finance, and mentorship networks — may be delivering tangible outcomes. The 45 percent leadership share indicates a healthy trend in female business ownership and underscores the importance of sustaining programs that nurture entrepreneurship among women. In practice, this may translate into higher participation rates, more diverse business models, and a broader range of sectors benefiting from SME growth. The December PMI thus ties gender-inclusive entrepreneurship to measurable outcomes in employment, output, and the broader push toward a diversified economy.

Section 8: S&P Global PMI Context: Non-Oil Growth Momentum

While the Riyad Bank SME PMI focuses specifically on the SME segment, broader market signals are corroborated by a separate S&P Global report showing that Saudi Arabia’s overall PMI for December reached 58.4, indicating robust growth in the non-oil economy. The alignment between SME-specific data and the wider non-oil PMI underscores the broader momentum within Saudi Arabia’s diversification strategy. The non-oil PMI’s strength provides context for the SME performance, suggesting that the SME sector is benefiting from the same positive macro conditions that support non-oil sectors at large. This cross-pollination of signals reinforces confidence that the economy is moving toward greater resilience, sustained by a mix of manufacturing, services, and technology-enabled enterprises capable of weathering external uncertainties.

The convergence of SME-specific and non-oil indicators highlights a broader theme: a diversified economy that can absorb shocks and adapt to evolving demand patterns. The synergy between SME growth, output expansion, and rising employment complements policy aims to promote innovation, digital transformation, and investment in human capital. The December PMI readings from both the SME segment and the broader non-oil economy illustrate a cohesive narrative: a country steadily building out its economic base beyond hydrocarbons, supported by an active SME engine and a conducive environment for growth across sectors.

Section 9: Strategic Implications for Stakeholders

For business leaders, the December PMI signals a favorable climate for expansion, hiring, and project development. SMEs should view the momentum as an invitation to accelerate long-term plans, optimize supply chains, and invest strategically in capabilities that boost productivity and competitive advantage. The data suggest opportunities across industries driven by robust demand, enabling SMEs to pursue scalable growth strategies and strengthen their market positions. Leaders should consider prioritizing investments in technology adoption, workforce development, and process improvements that underline resilience and efficiency while maintaining a prudent approach to cost management in a higher-inflation environment.

For investors and lenders, the December PMI results provide evidence of a vibrant SME landscape with solid demand, rising output, and improving employment dynamics. This supports continued interest in SME financing, venture funding, and credit facilities that facilitate expansion. Financial institutions may look to align their product offerings with SME needs, including working capital lines, equipment financing, and growth-focused credit facilities that can help SMEs capitalize on opportunities and sustain momentum. The data indicate that SMEs are expanding their workforce and production capacity, which can translate into stronger debt servicing and growth potential for financiers who understand the sector’s dynamics.

Policy-makers can interpret the December results as a signal to maintain a supportive policy framework that sustains SME momentum. This includes maintaining accessible financing channels, streamlining regulatory processes, and promoting digital transformation to enhance productivity and global competitiveness. The data also highlight the importance of continuing to support women-led SMEs and initiatives that foster inclusive growth, ensuring that the positive momentum translates into broad-based employment and economic opportunity. A coherent set of policy measures that aligns with Vision 2030 will help to amplify the positive feedback loop between SME expansion, domestic demand, and sustainable economic growth.

Conclusion

Saudi Arabia’s December SME PMI reading of 56.9 confirms ongoing expansion in the SME segment, with employment growth surging amid higher output and a robust inflow of new work. The fourth-quarter PMI average of 56.8 — the strongest quarterly reading since the end of 2023 — reinforces the view that the SME ecosystem is operating at an elevated and more resilient level. The decoupling of input cost pressures from inflation pressures — with costs rising while inflation eased modestly — suggests SMEs can navigate a favorable price environment while continuing to invest in capacity and talent. The rise in business confidence to its highest level since March, alongside a strong domestic demand backdrop, indicates a positive outlook for SMEs in the near term. The leadership share of women entrepreneurs at 45 percent further enhances the inclusivity and innovation potential of the SME sector.

Within Vision 2030, these results reinforce the significance of SMEs as a cornerstone of economic diversification and sustainable growth. The positive SME performance mirrors broader trends in the non-oil economy, as evidenced by the separate S&P Global PMI reading of 58.4 for December. Taken together, the data paint a coherent picture: a resilient, expanding, and increasingly diversified economy where SMEs play a central role in job creation, output growth, and inclusive prosperity. The Kingdom’s commitment to fostering a vibrant SME ecosystem — through long-term expansion, supportive demand conditions, and ongoing policy enhancements — underscores Saudi Arabia’s trajectory toward a more dynamic, innovation-driven, and globally competitive economic landscape. The ongoing transformation reflects not only the ambitions of Vision 2030 but also a practical, evidence-based approach to building a robust non-oil economy capable of sustaining growth and opportunity for all segments of society.