Capital Economics Predicts Saudi Arabia's Growth Will Remain Limited Until 2025
Capital Economics has published an analysis regarding Saudi Arabia's economic outlook, predicting that the country's growth will remain limited until 2025. The firm's forecast is based on the ongoing conservative oil policy and a shift towards fiscal consolidation.
The final estimate for Saudi Arabia's GDP growth shows that the growth rate slowed from 1.4% quarter-on-quarter in the second quarter to 0.9% in the third quarter. Nevertheless, annual GDP growth accelerated from -0.3% in the second quarter to +2.8% in the third quarter.
A detailed sectoral analysis revealed that both the oil and non-oil private sectors recorded quarter-on-quarter growth of 1.2% and 0.7%, respectively, in the third quarter. However, government activities contracted by 0.3% during the same period.
The oil sector's contribution to GDP is expected to remain limited in the coming months. With OPEC+ extending current production levels through April, oil production is projected to stay around 8.9 million barrels per day, resulting in annual growth largely remaining flat.
In contrast, the non-oil economy has shown a more resilient outlook. Private sector credit growth increased from a 12.2% annual rise in September to 12.5% in October. Additionally, mortgage lending increased, and the growth of local cement deliveries—an indicator of the construction sector—rose from 1.5% to 2.1% on a seasonally adjusted quarterly basis from September to October.
Despite these positive signs, high-frequency survey data indicates a softening towards the end of the year. The consumer confidence measured by Ipsos/Refinitiv hit a six-month low, and while the November PMI survey showed its highest level since April 2023, a detailed examination revealed a decline in the production component and a slowdown in domestic new orders.
Weekly point-of-sale transaction data also indicated slightly softer growth in November and the first week of December.
Looking ahead to 2025, Capital Economics predicts that GDP growth will accelerate, but most will be slower than anticipated. Oil production cuts are expected to be gradually reversed beginning in April, with forecasts suggesting only a 5% increase in oil production by the end of next year.
Additionally, expectations of a pullback in oil prices to $70 per barrel are likely to lead to weaker state oil revenues, necessitating the continuation of tight fiscal policies. As a result, Capital Economics projects that the Saudi economy will grow by 2.8% in 2025, which remains below the consensus forecast.