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Saudi Arabia's Sluggish Economic Growth Amid Extended Oil Cuts
Saudi Arabia is poised to experience one of the slowest economic growth rates among Gulf Cooperation Council (GCC) nations this year. A recent Reuters poll of economists has revealed a downward revision in growth forecasts, attributed to prolonged oil output cuts.
Initially, there were expectations that the Organization of the Petroleum Exporting Countries and allies, collectively known as OPEC+ and led by Russia, would ramp up production this year. However, in June, it was announced that the reductions would extend into 2025. Despite ongoing conflict in the Middle East, oil prices have struggled to remain above $80 per barrel. This scenario prompted the International Monetary Fund (IMF) to reduce Saudi Arabia’s growth forecast for the year, affecting the largest economy in the region.
Revised Growth Projections
The latest Reuters survey, conducted between July 8-22 with 24 economists, now predicts Saudi Arabia's economy will expand by only 1.3% this year. This is a reduction from the 1.9% forecast in April and significantly lower than the 3.0% predicted in January.
“Lower oil revenues are impacting non-oil growth. Saudi Arabia is in the process of an overhaul of Vision 2030 and adjusting investment spending...The impact on real GDP growth is clear – less investment means a more moderate growth outlook,” explains Ralf Wiegert, director of MENA economics at S&P Global Market Intelligence.
Economists further indicate that reduced oil revenues are likely to limit investments in non-oil sectors, impacting overall growth projections for 2024. However, forecasts for 2025 have been revised upwards to 4.5% from 4.1% in April, with expectations of an earlier-than-anticipated increase in oil production, though not to levels seen until July 2023.
Contrast with UAE and Other GCC States
In contrast, the United Arab Emirates (UAE) is expected to expand faster than Saudi Arabia, with a 3.7% growth forecast for this year and 4.2% in 2025. This acceleration is attributed to a quicker ramp-up in oil production and a continued emphasis on tourism.
“The UAE will be able to raise oil output sooner than other OPEC+ members and, coupled with supportive fiscal policy, it is likely to hold onto its position as the fastest-growing economy in the Gulf both this year and next,” notes James Swanston, Middle East and North Africa economist at Capital Economics.
Other GCC countries, including Kuwait, Oman, and Bahrain, are expected to see weaker economic growth due to the prolonged oil output cuts. While Kuwait remains in a recession, Qatar, Oman, and Bahrain are projected to grow by 2.2%, 1.6%, and 2.6%, respectively. Overall regional growth is forecasted to average 1.9% in 2024.
Subdued Inflation Across the Gulf
Inflation in the Gulf region is expected to remain low, with median forecasts ranging between 1.0% and 3.0% in 2024. Saudi Arabia’s inflation is expected to average 2.1% this year.
“Inflation dynamics in the Gulf have been very benign, even at the height of global inflationary pressures,” remarks Francesco Arcangeli, emerging market economist at J.P. Morgan. He adds that for Saudi Arabia, rent prices have been a recent source of inflationary pressure, though this seems balanced by a supportive labor market.
(Additional details on the Reuters global economic poll and subsequent reports can be found in related articles.)
