Saudi Arabia’s Economic Outlook Shifts: Slower Growth, Wider Deficits Ahead
The Saudi government has revised its economic growth forecasts downward and increased its budget deficit estimates for the next three years. According to the Ministry of Finance’s latest pre-budget report, real gross domestic product (GDP) is expected to grow at a sluggish 0.8% this year, a significant drop from the previous estimate of 4.4%. The GDP growth projections for 2025 and 2026 have also been trimmed to 4.6% and 3.5%, respectively.
The report highlights the kingdom’s commitment to accelerating regulatory and structural reforms, as well as developing policies to promote sustainable economic growth, improve social development, and enhance quality of life. The government plans to deploy sovereign and development funds for capital investment, empowering the private and non-profit sectors to drive growth and prosperity.
However, the budget is expected to remain in deficit for the next several years, with the Finance Ministry projecting a wider budget shortfall of about 2.9% of GDP for 2024, compared to a previous projection of 1.9%. Deficits of 2.3% and 2.9% are predicted for 2025 and 2026, respectively.
Saudi Arabia’s fiscal breakeven oil price, the price at which a barrel of crude must cost to balance the government budget, has increased in recent months and years. The IMF’s latest forecast puts that figure at $96.20 for 2024, marking a roughly 19% increase on the year before.
The kingdom is hosting major international events, such as the World Cup 2034 and Expo 2030, and building out multi-trillion dollar megaprojects like Neom, which will require significant spending. Oil prices are expected to remain subdued in the medium-term, amid slowing demand and increased supply globally.
Despite the challenges, Saudi Arabia’s public debt remains relatively low, at around 28% of its GDP, compared to EU countries’ average of 82% and the U.S.’s 123%. The kingdom’s high credit rating makes it easier to take on more debt as needed. Reforms to boost and de-risk foreign investment and diversify revenue streams are also underway.
While the economy has contracted for the last four consecutive quarters, non-oil economic activity grew 4.4% in the second quarter year-on-year, up 3.4% in the previous quarter.
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