Saudi Arabia gears up for stronger growth as oil prospects boost outlook

Dubai: Saudi Arabia is setting its sights on stronger economic growth in 2025 and 2026, driven by a combination of robust non-oil activity and improving oil prospects. According to Riyad Capital’s latest outlook, the Kingdom’s economy is expected to grow by 3.5% in 2025 and 4.2% in 2026, with momentum building on both sides of the economic spectrum.

The anticipated pickup in oil sector activity comes after OPEC’s decision to accelerate the unwinding of voluntary output cuts in the second half of 2025. Riyad Capital expects this move to support a 3.5% expansion in Saudi oil activities next year, followed by a more pronounced 5.4% growth in 2026. While oil prices have been soft recently, the forecast hinges on the production boost driving sectoral gains rather than immediate price spikes.

At the same time, non-oil sectors remain the bedrock of the Kingdom’s economic transformation, with growth projected at 4.1% in 2025 and 4.3% in 2026. That growth is underpinned by a spending-driven fiscal policy, public investment led by the Public Investment Fund (PIF), and rising private sector credit demand — especially among corporates.

The expansionary push comes at a short-term cost. In Q1 2025, government spending rose by 5.4% year-on-year, even as revenues dipped by 10.2%, resulting in a fiscal deficit of SAR 59 billion. Riyad Capital projects a deficit equal to 4.5% of GDP in 2025, narrowing to 3.6% in 2026 — largely financed through borrowing, which would still leave debt-to-GDP at a moderate 32.5% by 2026.

Despite weaker oil export values and strong import growth, Saudi Arabia’s current account deficit is expected to remain manageable — at -3.6% of GDP in 2025, improving to -2.9% in 2026, helped by a recovery in oil exports and tourism revenues.

On the monetary front, inflation is expected to tick slightly higher to 2.5% in 2025, easing to 2.3% in 2026 — still within a contained range. Meanwhile, with US rate cuts anticipated in late 2025, the Saudi 3-month interbank rate (SAIBOR) is forecast to decline to 4.75% by year-end, from its current level of around 5.35%.

While Riyad Capital’s projections are on the optimistic side, the International Monetary Fund (IMF) also expects Saudi GDP to grow — albeit at a slightly more modest 3.0% in 2025 and 3.7% in 2026. That’s a revision down from earlier forecasts but still ahead of the global average of 2.8% for next year. The IMF highlights Saudi Arabia’s steady inflation and structural reforms as positives, noting that the Kingdom is outperforming many of its Gulf neighbours.

For context, UAE is forecast to lead the GCC with 4% growth in 2025, followed by Saudi Arabia, while Bahrain, Qatar, Oman, and Kuwait are all expected to trail behind.

With non-oil momentum holding firm and oil production expected to ramp up, Saudi Arabia’s strategy for 2025 and beyond reflects a calculated bet: growth today, transformation for tomorrow. The numbers may shift, but the direction remains clear — economic diversification backed by oil sector tailwinds and active public investment.