This growth projection positions Saudi Arabia as the second-fastest growing economy globally for that year. Key factors contributing to this upward revision include a rebound in oil production and robust investment in the non-oil sectors. In 2024, Saudi Arabia's oil output is projected to contract by 4.6% due to extended production cuts, but it is expected to increase by 5.1% in 2025, contributing significantly to the overall GDP growth.
Non-oil sectors are also set to play a crucial role in this economic surge. The Saudi Vision 2030 initiative continues to drive diversification efforts, resulting in a non-oil growth projection of approximately 3.5% for 2024. This growth is expected to accelerate in 2025, supported by investments from the Public Investment Fund (PIF) and preparations for major events such as the 2027 Asian Cup, the 2029 Asian Winter Games, and the 2030 World Expo.
Despite the positive outlook, the IMF notes that there are risks associated with this rapid growth. Potential overheating of the economy and geopolitical uncertainties could pose challenges. Nonetheless, the Kingdom has managed to maintain stable inflation rates, with headline inflation decelerating to 1.6% in April 2024 from a peak of 3.4% in January 2023. This stability is supported by a credible peg to the U.S. dollar and sound domestic policies.
Saudi Arabia's labor market has also shown remarkable improvement, with unemployment rates for Saudis dropping to 7.7% in the last quarter of 2023, edging closer to the Vision 2030 goal of 7%. The creation of over one million jobs, primarily in the private sector, has been a significant factor in this achievement.
The Kingdom's current account surplus, however, narrowed significantly from 13.7% of GDP in 2022 to 3.2% in 2023. This reduction was primarily due to lower oil exports and increased investment-related imports. Despite this, Saudi Arabia's international reserves remain robust, providing a substantial buffer against external shocks. The Saudi Central Bank's holdings of net foreign assets stood at $423.7 billion in April 2024, reflecting the country's strong financial position.
The IMF has praised Saudi Arabia's recalibration of funding requirements associated with Vision 2030, which aims to balance spending to prevent economic overheating while maintaining fiscal sustainability. The strategic adjustment of project timelines and sectoral priorities is expected to enhance clarity for investors and ensure the continued momentum of the Kingdom's ambitious development plans.
Overall, Saudi Arabia's economic prospects are bolstered by a combination of strategic investments, prudent fiscal management, and continued diversification efforts. As the Kingdom progresses towards its Vision 2030 goals, it is poised to achieve significant economic milestones, reinforcing its position as a leading economy in the region and beyond.
Sources:
- IMF Concluding Statement of the 2024 Article IV Mission
- Arab News
- Asharq Al-Awsat
- Saudi Press Agency