Saudi Economy Expands 3.9% on Strong Non-Oil Momentum

Saudi Arabia’s economy expanded for a fifth straight quarter, driven by steady growth in the non-oil sector and a return to expansion for oil activities as the kingdom boosts output under new Opec+ supply policy.

Overall gross domestic product rose 3.9% year on year in the three months through June, compared with 3.4% in the previous quarter, according to preliminary data published by the statistics office on Thursday.

Non-oil activities — the primary focus for the kingdom as it seeks to expand outside the energy sector to help diversify the economy and attract more foreign investors — grew 4.7%.

The oil economy swung back to expansion after contracting in the first quarter, growing by 3.8%. Opec+ countries, led by Saudi Arabia and Russia, have been opening the taps in recent months after years of supply restraint that had dragged on oil growth.

The International Monetary Fund recently raised its Saudi GDP forecast to 3.5% for 2025, from a prior view of 3% earlier this year, saying the kingdom “has demonstrated strong resilience to shocks, with non-oil economic activities expanding, inflation contained, and unemployment reaching record-low levels.” The Middle East’s biggest economy is spending heavily on its Vision 2030 strategy, which includes major infrastructure projects and an overarching goal of weaning the economy off its reliance on crude oil revenues. 

Key indicators show, however, that the government is still largely reliant on petrodollars to drive economic activity and the broader diversification agenda.

Prices for global benchmark Brent crude have declined more than 2% this year to about $73 a barrel. JPMorgan Chase & Co and Citigroup Inc have forecast prices will continue to slide toward $60 later this year as excess supplies pile up.

According to Ziad Daoud, chief emerging markets economist at Bloomberg Economics, the kingdom requires the price of crude to be $96 a barrel to balance its budget in the first quarter, and $113 when including the sovereign wealth fund’s domestic spending.

The combination of low crude prices, falling oil-export revenue and elevated investment needs has the kingdom facing deeper budget deficits. To fund the gap, the government will likely have to increase borrowing, even after debt levels jumped the most on record in the first quarter.

Saudi Arabia’s total debt still stands at $354bn, about 30% of GDP and low by the standards of most other governments.