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Volatility of crude markets masks Saudi non-oil momentum

AlUla Old Town. The heritage site is one of Saudi Arabia's flagship tourism projects Royal Commission for AlUla
AlUla Old Town. The heritage site is one of Saudi Arabia's flagship tourism projects
  • 5% GDP rise forecast for 2024-25
  • ‘Striking’ growth in tourism
  • Upsurge in export orders

Volatility in global oil markets, which led to Saudi Arabia’s GDP shrinking last year, is masking the strength of the kingdom’s non-oil economy, analysts have said. 

Its non-oil revenue is forecast to rise by more than 5 percent in each of the next two years, according to Jadwa Investment.

The 2023 contraction was driven by a 9 percent drop in oil activities, but analysts are expecting non-oil GDP growth to maintain its momentum over 2024-25.



The world’s top oil exporter is trying to diversify its economy via massive development projects. 

“Whereas five years ago non-oil activity was largely a function of central government spending, today the Public Investment Fund, National Development Fund and private investors are all deeply involved in the Vision 2030 push,” says James Reeve, chief economist at Jadwa Investment.

Domestic trade, including the retail, wholesale and hospitality sectors, is driving growth, he says, and related sectors such as transport and power are set to be “pulled along”.

In a Jadwa research paper, Reeve describes the growth in tourism as “striking”. Saudi Arabia had 27 million international visitors and total spending of more than SAR100 billion in 2023.

Construction is another pillar of non-oil growth, given the giga-project rollout and the successful bids for Expo 2030 and the 2034 World Cup. A shortage of building materials and labour could cause issues, however.

Some of this relates to Red Sea disruption and some to the sheer number of projects, according to Jadwa.

The building industry added 148,000 workers in the year to Q3 2023 on a net basis. This was down from 400,000 added in the full year 2022.

“India, the traditional source of much construction manpower, has its own vibrant project market and Saudi wages will need to rise further to tempt these workers,” Reeve says.

The latest Riyad Bank Saudi Arabia Purchasing Managers’ Index, which tracks non-oil performance, reported the quickest rise in business activity for five months in February, after a two-year low the previous month.

Bosses’ expectations about future activity were “buoyed”, the survey found, while supply chains remained “in good health and supported a marked increase in inventories”.

Crown Prince Mohammed bin Salman is spearheading efforts to diversify the Saudi economySputnik/Sergei Savostyanov/Pool via Reuters
Crown Prince Mohammed bin Salman is spearheading efforts to diversify the Saudi economy

Naif Al-Ghaith, chief economist at Riyad Bank, says February’s upturn reflects the “continued thriving of non-oil activities in the kingdom”.

“The upsurge in new export orders signified growing demand for domestic products from international markets and high competitiveness in local industries.”

Capital Economics is also forecasting growth in non-oil activity.

James Swanston, Middle East and Africa economist at the London-based consultancy, says: “We expect Saudi GDP to grow by 1.3 percent this year, which is below consensus, but 2025 will be far stronger as oil output is ramped up more aggressively.”

Jadwa is predicting real GDP growth will rebound to 2.3 percent this year, with the fall in oil GDP more than outweighed by a 5.1 percent gain in non-oil GDP.

In 2025 non-oil GDP is expected to rise to 5.2 percent, the consultancy says. 

It is forecasting that oil GDP will bounce back by almost 8 percent, which should lead to overall GDP accelerating by almost 6 percent.

Jadwa says: “Higher oil prices will obviously support the budget and broader confidence in what is likely to be an important year for the kingdom, with many flagship Vision 2030 projects due to come on line.”

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