S&P: Accelerating growth of non-oil sector boosts Saudi economic growth by 5.3% in 2025

A new report issued by Standard & Poor’s today revealed its expectation of Saudi economic growth of 5.3% in 2025, up from 1.4% expected growth this year, indicating that the accelerating growth of non-oil GDP in the Kingdom supports the upward trend in Saudi economic growth, which is expected to maintain a strong growth rate in 2025 that exceeds the average expected growth for emerging markets at 4.3%, in addition to the continued decline in inflation and unemployment rates.

The report, titled “Emerging Markets Economic Outlook for Q4 2024: Low Interest Rates Help Face Growing Risks,” shows that the agency has reduced its forecast for Saudi economic growth this year and 2025 by a small margin of no more than (-0.1) points, as it expected last June that the Saudi economy would grow by 1.5% this year and 5.4% in 2025, despite the recent decline in oil prices from $85 per barrel since the beginning of the year until the end of last August to $75 per barrel at the beginning of September, and expectations that OPEC will extend oil production cuts, especially if oil prices fall further, in addition to the political tensions currently witnessed in the Middle East. The agency’s new forecasts confirm its confidence in the Saudi economy’s ability to absorb any external crises or decline in oil prices as a result of the rapid and sustainable growth of the non-oil sector, in a clear indication of the success of the Kingdom’s Vision 2030 in breaking the previous major link between global oil price developments and Saudi economic growth. Standard & Poor’s forecasts for Saudi economic growth in 2025 remain higher than the International Monetary Fund’s forecasts in its latest report at 4.7% (July 2024), and close to the Saudi Ministry of Finance’s forecasts of 5.7% published in the 2024 budget statement and according to data from the General Authority for Statistics. The agency expected that the inflation rate in Saudi Arabia this year would reach 1.6% and would decline in 2025 to 1.5%, making Saudi Arabia the third lowest emerging economy in terms of inflation rates after China (1%) and Thailand (1.2%), as expectations indicate that Saudi Arabia will achieve the second lowest inflation rate this year among the G20 countries in light of the relative stability in prices witnessed by Saudi markets compared to other countries. In confirmation of the downward trend in unemployment rates in the Kingdom, the report expected that the average annual unemployment rate in the Saudi economy (citizens and foreigners) would reach 4.7% by the end of this year, and is expected to decline to 4.4% in 2025, 4% in 2026, and 3.8% in 2027, in an indicator that reflects the gradual and continuous decline in unemployment rates in the Kingdom as a result of the momentum and transformation witnessed by the Saudi economy in recent years. The report expected that most emerging market economies will witness faster growth in 2025 compared to 2024, but it expected a disparity in the growth rates of these markets, most of which will benefit from capital flows as a result of the US Federal Reserve’s decision and directions to reduce interest rates, as the agency expected the US Federal Reserve to continue to ease monetary policy steadily in the coming quarters, bringing the benchmark interest rate to between 3.00% and 3.25% by the end of 2025. The agency explained that Southeast Asian economies are better positioned among emerging markets to attract capital flows thanks to their strong growth fundamentals. Although most central banks in Southeast Asia have not started to normalize monetary policy with the new variables, the agency expects them to start in the coming months in light of the decline in interest rates in the United States. The agency identified the main downside risks to its emerging market growth outlook as the effects of the US elections on trade and fiscal policy, a faster-than-expected slowdown in economic growth in the US, continued economic weakness in China, and further escalation of the conflict in the Middle East, in addition to ongoing uncertainty about domestic policies in many emerging markets. It noted that if the US economy slows more than the agency expects in the coming quarters, emerging markets with strong trade ties with the US, such as most Latin American countries, will also experience slower growth and lower capital flows. The report indicated that a potential escalation of the conflict in the Middle East could lead to a rise in oil prices again in the coming months, and thus the expected growth rates of most major emerging markets, which are net energy importers, will be affected, while emerging oil-exporting markets will benefit. The report confirmed that Malaysia and Vietnam will benefit from electronics exports and foreign direct investment related to electronics, as industrial production in emerging markets in Southeast Asia outperforms most other emerging markets. In Vietnam, for example, industrial output grew by about 10% year-on-year in the first half of this year.