The IMF reports robust non-oil growth in Saudi Arabia, with tourism booming and unemployment hitting historic lows, but long-term oil revenue forecasts raise concerns

Saudi Arabia’s economy continues to show resilience despite ongoing regional conflicts, including Israel’s war on Gaza and Houthi attacks on commercial shipping in the Red Sea. According to the latest International Monetary Fund (IMF) report, the kingdom’s economy has not been significantly impacted by these geopolitical tensions, a testament to its strategic shift away from dependency on oil and regional disputes. This strong performance underscores the positive outlook for Saudi Arabia 2024 growth, reflecting the effectiveness of its economic diversification efforts.

The report indicates that Saudi oil exports remain unaffected by the conflict in the Red Sea, where Houthi forces have targeted vessels in an act of solidarity with Palestinians in Gaza. While these disruptions have concerned global observers, Saudi Arabia has successfully insulated its economic infrastructure from these challenges. Tourism remains a bright spot, with visitor numbers continuing to grow, contributing to a thriving non-oil sector.

The IMF praised Saudi Arabia’s economic diversification under Crown Prince Mohammed bin Salman’s Vision 2030 initiative. At the close of 2023, the kingdom’s unemployment rate hit a historic low, largely driven by private-sector job creation. Non-oil GDP growth slowed slightly to 3.8% in 2023, down from 5.3% in 2022, but remained strong due to robust private consumption and investment.

Despite this positive outlook, Saudi Arabia faces long-term challenges. Oil revenues are expected to peak earlier than previously forecast, and the kingdom’s ambitious megaprojects under Vision 2030 have been recalibrated. For instance, the $1.5 trillion Neom City project, once envisioned as a futuristic metropolis housing 1.5 million residents by 2030, has been scaled back. Officials now expect fewer than 300,000 residents by the end of the decade, with only 2.4 km of the project completed by then. These adjustments reflect the evolving realities of Saudi Arabia 2024 growth and the kingdom’s efforts to adapt to changing economic conditions.

Saudi Arabia’s efforts to balance its budget hinge on maintaining oil prices at $96 per barrel. Currently, oil prices are roughly $20 higher than this threshold, but the IMF’s forecast that oil demand will decline faster than expected in the coming years has raised concerns. Although oil revenues are projected to rise to $209 billion by 2026, they are likely to dip sooner than initially estimated.

While Saudi Arabia has refrained from taking a more active role in the Gaza conflict, it has signalled support for Palestinian statehood and suspended its normalization talks with Israel. This cautious stance allows the kingdom to focus on its domestic agenda while avoiding getting drawn into broader regional instability.

Analysis

Political: Saudi Arabia’s economic performance amid the Gaza conflict reflects Crown Prince Mohammed bin Salman’s careful balancing act between regional politics and national growth. By distancing the kingdom from active involvement in the Israel-Palestine conflict, while still calling for steps toward a Palestinian state, Saudi Arabia has positioned itself as a neutral yet influential power in the Middle East. This approach has allowed the country to sidestep potential economic and political fallout from the war, which has destabilized other nations in the region, such as Egypt and Jordan. However, its long-term reliance on oil revenue still makes it vulnerable to shifting global energy trends and political alignments.

Social: The stability of Saudi Arabia’s economy, despite regional turbulence, illustrates the kingdom’s shift toward a more diversified, consumer-driven society. The growth in private sector employment and the historic low in unemployment suggest a broader transformation within Saudi society. Vision 2030 aims to create more opportunities for Saudi nationals, particularly young people, to enter the workforce in industries outside the oil sector. This shift has implications for social mobility and the kingdom’s efforts to modernize its labour market. However, it remains to be seen how effectively these efforts will translate into long-term job security and economic independence for Saudi citizens.

Racial: Saudi Arabia’s approach to the Israel-Palestine conflict, as well as its relationship with Yemen and the Houthis, highlights the complexities of racial and ethnic dynamics in the Middle East. While the kingdom has expressed solidarity with Palestinians, it has taken a more conciliatory approach with the Houthis, relaxing banking restrictions and resuming flights to Yemen. These moves reflect Saudi Arabia’s broader strategy to position itself as a stabilizing force in a region deeply divided along ethnic and sectarian lines. The economic ties it maintains with diverse regional groups suggest that Saudi Arabia is keen to foster a multi-ethnic, economically integrated Gulf region, even as racial tensions continue to simmer.

Gender: The ongoing economic reforms under Vision 2030 are also reshaping gender roles in Saudi Arabia. Increased private sector employment and economic diversification offer more opportunities for women to enter the workforce, a significant shift in a traditionally male-dominated society. These reforms are part of the kingdom’s broader push toward social modernization, as seen in recent policies granting women the right to drive and travel without a male guardian. However, gender disparities persist in the workforce, and it remains to be seen how deeply these reforms will penetrate Saudi society. The kingdom’s ability to achieve its economic goals may depend on its success in fully integrating women into its labour market.

Economic: Economically, Saudi Arabia’s ability to maintain strong growth despite regional instability is a testament to its evolving economic model. The kingdom’s pivot from oil dependency to a more diversified economy under Vision 2030 has been key to its recent successes, as reflected in strong non-oil GDP growth and rising private sector employment. However, the long-term sustainability of this growth is uncertain. The IMF’s warning that oil revenues will peak earlier than expected puts pressure on Saudi Arabia to accelerate its diversification efforts. Mega-projects like Neom are crucial to this strategy, but their scaling back raises questions about the feasibility of the kingdom’s ambitious plans. Oil remains a cornerstone of the Saudi economy, and fluctuations in global oil demand could challenge its fiscal stability. Balancing these concerns while maintaining strong non-oil growth will be crucial for Saudi Arabia 2024 growth and the kingdom’s future economic prospects.