Economy to rebound but concerns on long-term sustainability remain

Saudi Arabia’s economy rebounded during the second half of 2024, ending the year with GDP growth at +1.4%. The 2024 slowdown was the result of oil prices dropping below USD80/barrel and the self-imposed oil production cap of 9-9.5mn barrels per day. In 2025, momentum will continue building, with projected growth at +4.0% as oil output increases. After a year of oil production quotas to stabilize the global price, OPEC is projected to raise output, which should support Saudi Arabia’s growth. Saudi Arabia’s neighbors, notably Kuwait, are projected to also benefit from the increase of oil output.

The non-oil economy continued to grow over the first half of the year, albeit with a decelerating trend, reflecting the country’s continued heavy dependence on commodities. Non-oil industrial and manufacturing sectors grew at a weaker pace, while construction grew by +10%, boosted by government spending on massive infrastructure projects. In parallel, services outperformed with tourism in the lead. In the first seven months of 2024, international arrivals to the Kingdom increased by +73% from the previous year. Inflation is following similar trends to the rest of the GCC countries, with prices expected to slightly rise to 2.3% y/y in 2025, compared 1.7% in 2024.

The Kingdom’s leadership remains committed to their Vision 2030 program, channeling oil funds for economic diversification, stimulating the domestic economy and building up the country for major sports and cultural events. Throughout the next decade, the Kingdom will host several sport events (including the 2034 FIFA World Cup) and the 2030 Riyadh Expo. Saudi Arabia also plans to tap into the growing LNG global market as it is expanding domestic gas output. In the face of lower-than-expected oil revenues, authorities have scaled back some projects of the 2030 Vision and redistributed and reprioritized funds. The question remains if such a top-down approach to economic development through mega-projects and events will bring sustainable long-term economic growth.

Saudi Arabia is following the footsteps of the United Arab Emirates in positioning itself as a hub for tourism, technology and financial services through the adoption of new laws aimed at providing safer regulatory stability and attracting FDI, such as the new laws in civil and commercial transactions, and an investment code. Higher female labor force participation is also supporting growth and attracting more talent from across the region. In addition, the active role of the Kingdom’s sovereign wealth fund to invest in strategically important technologies could channel productive investment towards Saudi Arabia and support the diversification effort. Notably, the main investments have been directed towards AI and electric vehicles.

Saudi Arabia has been establishing new global partnerships, diversifying from the US, its main historical partner. In the framework of the G20, Saudi Arabia has joined forces with European countries, other Middle Eastern nations and India for the development of a new economic corridor that would bring Saudi Arabia into the center of transportation between Europe and South Asia, even though this plan is now under question due to the conflict in the Levant. China has become an important political ally to Saudi Arabia after having built a solid economic relationship over the last decade in the framework of the Belt and Road Initiative, with major infrastructure projects built and financed together with Chinese corporations. Politically, Beijing has become an important partner and mediator in the region, brokering a deal to reestablish relations between Saudi Arabia and Iran in 2023, as well as a mediator between Palestinian factions, which are strongly connected to the Kingdom’s political elites.