Saudi Arabia's Growth Outlook Reflects Caution Through 2025

Saudi Arabia's Economic Landscape: Insights and Projections

Capital Economics has recently shared its analysis regarding the economic forecast for Saudi Arabia, indicating that growth will likely remain muted as we move towards 2025. This perspective stems from the kingdom's ongoing conservative approach to oil production and a noticeable shift towards fiscal discipline.

GDP Growth Trends Unveiled

The latest updates on Saudi Arabia's GDP growth reveal a gradual decline in the growth momentum. The estimate for GDP growth showed a drop from 1.4% quarter-on-quarter in the second quarter to 0.9% in the third quarter. On a more positive note, the year-on-year GDP growth saw an increase from -0.3% in the second quarter to a notable +2.8% in the third quarter.

Sectoral Analysis: Oil and Non-Oil Contributions

A detailed look into sector performance indicates that in the third quarter, both the oil sector and the private non-oil sector exhibited growth, showing increases of 1.2% and 0.7% quarter-on-quarter, respectively. However, it was observed that government activities contracted by 0.3% during that same timeframe.

Oil Sector Dynamics: Short-Term Limitations

The contribution of the oil sector to the GDP is expected to face constraints in the upcoming months. OPEC+ has announced an extension of current production levels until April, keeping oil output stable at approximately 8.9 million barrels per day, with year-on-year growth projected to remain relatively flat.

Resilience in the Non-Oil Economy

In contrast to the oil sector, the non-oil economy has been demonstrating considerable resilience. Credit growth in the private sector has seen a slight increase, from 12.2% in September to 12.5% in October. Mortgage lending has also shown upwards trends, with growth in local cement deliveries, an essential indicator for the construction sector, moving from 1.5% to 2.1% in a seasonally adjusted context from September to October.

Consumer Confidence and Market Sentiment

Nonetheless, there are signs indicating a potential softening as the year comes to a close. The Ipsos/Refinitiv consumer confidence index has reached a six-month low. Although the November PMI survey revealed an uptick since April 2023, the details indicated a downturn in the output component and a slowdown in new domestic orders.

Sales Data and Economic Indicators

Additional insights from weekly point-of-sale transaction data show a slight easing in growth as of November and the beginning of December. This suggests a cautious consumer sentiment ahead of the new year.

Future Projections: Preparing for 2025

Looking towards 2025, Capital Economics anticipates that while the GDP growth may pick up, the pace will remain slower than what many observers expect. As oil production cuts are expected to be lifted gradually starting in April, the forecast indicates that oil production will only grow by about 5% by the end of next year.

In light of projections that oil prices may retreat to around $70 per barrel, there are corresponding expectations for weaker revenues from state oil activities. This scenario requires the continuation of stringent fiscal policies. Consequently, Capital Economics predicts that the Saudi economy is set to grow by 2.8% in 2025, a figure that is notably below many current consensus estimates.

Frequently Asked Questions

What is the primary forecast for Saudi Arabia's GDP growth?

Capital Economics predicts that Saudi Arabia's GDP will grow by 2.8% in 2025, which is cautious compared to other forecasts.

Why is the oil sector's contribution to growth expected to be limited?

The limits are primarily due to OPEC+'s decision to maintain production levels, keeping oil output stable around 8.9 million barrels per day.

How has consumer confidence changed recently in Saudi Arabia?

Recent indices show a decline in consumer confidence, reaching a six-month low as measured by Ipsos/Refinitiv.

What signs indicate resilience in the non-oil economy?

Growth in private sector credit and increased mortgage lending signal that the non-oil economy is showing strong resilience.

What fiscal policies are expected to remain in place moving forward?

Given weaker oil revenues, tight fiscal policies are expected to continue in Saudi Arabia in the coming years.

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