Economic diversification, capital inflows, and social reform boost Saudi Arabia’s GDP growth

Saudi Arabia’s economy is projected to experience significant growth, with its gross domestic product (GDP) expected to expand by 1.4% in 2024 and accelerate to 5.3% in 2025, according to a recent analysis by S&P Global. The US-based credit rating agency attributes this robust growth to a combination of economic reforms, capital inflows, and anticipated rate cuts by the US Federal Reserve, which are expected to benefit emerging markets like Saudi Arabia.

Reforms and Diversification Fuel Growth S&P Global emphasized that Saudi Arabia’s ongoing efforts to diversify its economy away from oil dependency are crucial to its future success. The country’s transformation, highlighted by reforms in the non-oil private sector, aims to strengthen domestic demand, particularly in areas such as tourism, household spending, and construction.

The credit rating agency notes that these reforms will continue to boost growth indicators over the next few years, contributing to a forecasted 4% growth in 2026, followed by a slight decline to 3.6% in 2027. Additionally, inflation is expected to remain low, averaging 1.8% in 2024 and 1.6% in 2025, while unemployment rates will also decrease, from 4.7% in 2023 to 4.4% in 2024.

Emerging Markets Outlook The broader outlook for emerging markets remains positive, with S&P Global forecasting strong growth in regions like India, Southeast Asia, and Turkiye. India’s GDP is expected to expand by 6.8% in 2024 and 6.9% in 2025, while Southeast Asian countries like Malaysia and Vietnam will benefit from capital inflows and industrial production driven by electronics exports.

However, the agency also warns of potential risks, such as rising geopolitical tensions in the Middle East, fluctuating oil prices, and uncertainty surrounding US trade policies. These factors could disrupt emerging markets by increasing inflation, reducing trade volumes, and raising energy costs.

OECD’s Projections for Saudi Arabia In a separate report, the Organization for Economic Cooperation and Development (OECD) projects Saudi Arabia’s economic growth at 1% in 2024 and 3.7% in 2025, aligning with S&P Global’s positive outlook. The OECD also predicts that global economic growth will remain resilient at 3.2% for both 2024 and 2025, slightly up from 3.1% in 2023.

Overall, the combination of domestic reforms and favourable global conditions positions Saudi Arabia for a period of sustained economic expansion, driven by its ongoing diversification efforts and strategic economic policies.

Analysis

Political: The projected growth in Saudi Arabia’s economy comes at a critical time as the nation’s leadership continues to implement Vision 2030, a strategy aimed at reducing the country’s dependence on oil. This vision aligns with the global push for sustainability and diversification, presenting Saudi Arabia as a key player in the region. The country’s stability, combined with proactive reforms, strengthens its position politically and economically, ensuring that it remains attractive to foreign investors and allies.

Social: The economic growth forecasts suggest that Saudi Arabia’s domestic policies, including labor market reforms and increased social freedoms, are bearing fruit. As domestic demand rises in sectors like tourism and construction, the ripple effect could lead to improved living standards, increased employment opportunities, and a more vibrant middle class. This aligns with the government’s aim to create a more diversified and socially dynamic society.

Gender: With economic expansion driven by tourism, household spending, and reforms, Saudi Arabia is also likely to see greater opportunities for women in the workforce. The government’s initiatives to increase female labor participation are integral to its broader social reform agenda, potentially leading to a more gender-inclusive economy where women play a greater role in driving growth, particularly in the non-oil sectors.

Economic: Saudi Arabia’s projected GDP growth highlights its success in attracting capital inflows and reducing its reliance on crude oil. The diversification of the economy into non-oil sectors, such as tourism and construction, ensures a more resilient economic future. The focus on domestic demand indicators, including household spending, also signals a shift toward a more consumer-driven economy. Furthermore, stable inflation rates and declining unemployment show that economic growth will be sustainable over the coming years.