Saudi Arabia's construction activity accelerated in August, driven by a robust increase in residential building and stronger new orders, according to the latest Alrajhi capital Saudi Construction Index compiled by S&P Global.

The seasonally adjusted index rose to 55.4 in August from 55.2 in July, marking its fourth consecutive month above the 50-point threshold that separates growth from contraction. It was the second-highest reading since the survey began in January.

All three sectors tracked by the index - residential, non-residential structures and infrastructure - recorded growth during the month.

Residential construction was the strongest-performing segment, with its activity index rising to 57.5. Firms cited improving market conditions, new project starts and work on major urban development schemes.

Infrastructure activity also expanded, with the index at 53.9. Although growth slowed from July, it remained stronger than at any point in the first half of the year, supported by regional development, utilities investment, road construction and transport projects.

Non-residential construction, covering office and commercial buildings, institutional projects and industrial facilities, grew at a solid pace, with its index at 53.5. Companies cited improving economic conditions and the restart of projects, although some reported delays in client decision-making.

New orders remain strong

New business received by construction companies continued to increase sharply in August, with infrastructure recording its fastest rise in new orders since February.

Residential new orders also strengthened, reaching their highest rate of growth since the survey began.

Stronger demand contributed to a further increase in employment, while purchasing activity rose at its fastest pace since the survey started.

Supplier delivery times improved for a fourth consecutive month despite stronger demand for construction inputs and continued reports of international shipping delays.

Input costs rise

Input price inflation accelerated in August after easing to a three-month low in July. Companies reported higher transportation and raw material costs, particularly for aluminium, copper and steel.

Despite rising costs, construction companies remained optimistic about the outlook. Some 42% of respondents expected overall business activity to increase over the coming year, compared with 7% who anticipated a decline.

That represented a moderation in confidence from July, when optimism reached a recent peak.

"Activity increased across all three major segments, while new orders remained strong," said Sultan Altowaim, head of research at alrajhi capital.

He said the operating environment remained supportive, citing stronger purchasing activity and improving supplier delivery times, while acknowledging that input cost inflation had accelerated.

Confidence over the next three months was strongest in the residential and infrastructure sectors, with companies pointing to improving sales pipelines and an increase in new project starts.

The alrajhi capital Saudi Construction Index is based on a survey of around 200 construction companies and measures changes in activity from the previous month. A reading above 50 indicates expansion.-TradeArabia News Service