The Kingdom of Saudi Arabia on the basis of strong fundamentals, is witnessing robust economic performance. A rise in public sector investments, combined with a raft of social and economic reforms has boosted the non-oil economy.
In 2024 real GDP growth is projected at 2.6 percent, up from -0.8 percent in 2023, as per the IMF. Over the past three months statistics showed that the annual inflation rate in Saudi Arabia has stayed stable at 1.6 percent, explaining relative stability on an annual basis. The inflation rate in Saudi is one of the most stable, which confirms the strength and durability of the Saudi economy.
It also demonstrates the effectiveness of economic plans and decisions that the Kingdom rushed to take early on to confront the wave of worldwide inflation and high prices.
The Economists recorded that the Consumer Price Index (CPI) reflects the changes in prices paid by consumers for a fixed basket of goods and services consisting of 490 items. This basket was selected based on the household income survey conducted in the year 2018. The prices are collected by field visits to points of sale. Looking forward, growth will likely be supported through public sector investments, business environment reform, gradually lower interest rates, robust credit growth, ongoing development of retail and tourism sectors and employment gains among Saudis and expats. On the other hand, significance oil dependence, low World Bank governance indicators and vulnerability to geopolitical shocks remain relative weaknesses according to Fitch.
| Wholesale Price Index (Wpi) (2014=100) change (%) | ||||||||
|---|---|---|---|---|---|---|---|---|
| Details | Weights | Q2 2023 | Q3 2023 | Q4 2023 | Q1 2024 | Q2 2024 | Q2 2024 /Q1 2024 | Q2 2024 /Q2 2023 |
| General Index | 100.0 | 149.3 | 149.4 | 152.0 | 155.1 | 154.1 | -0.6 | 3.3 |
| Agricuture and fishery products | 8.7 | 139.8 | 139.5 | 138.2 | 138.5 | 139.7 | 0.9 | -0.1 |
| Ores and Minerals | 0.6 | 116.3 | 116.6 | 115.2 | 113.8 | 113.0 | -0.7 | -2.8 |
| Food products, beverages and tobacco and textiles | 17.3 | 134.2 | 135.9 | 136.7 | 137.0 | 136.7 | -0.2 | 1.8 |
| Other goods | 33.7 | 174.9 | 175.2 | 183.9 | 192.2 | 188.9 | -1.7 | 8.0 |
| Metal products, machinery and equipment | 39.7 | 136.7 | 136.1 | 135.3 | 135.7 | 136.0 | 0.2 | -0.5 |
Nonetheless, governance is enhancing with social and economic reforms and efforts to bolster effectiveness across government institutions. At the external level, foreign reserves in 2023 excluding gold fell moderately, to US$ 437 billion, as financial account outflows in the form of investments abroad outweighed the current account surplus, which narrowed to an estimated 3.2 percent of the Gross Domestic Product (GDP), i.e almost US$ 100 billion smaller than in the last year, because of lower oil revenue and high imports. It is worth noting that the ratio of exports to imports has receded from 216.6 percent in 2022 to 154.6 percent in 2023. At the fiscal level, the government fiscal balance to GDP moved from a surplus of 2.5 percent in 2022 to a deficit of 2.0 percent in 2023. This comes amid an increase in government expenditures to GDP from 28.3 percent to 32.3 percent over the corresponding period, while government revenues to GDP fell from 30.7 percent to 30.3 percent. In parallel, debt to GDP has risen from 23.8 percent in 2022 to 26.2 percent in 2023 on the basis of a US$ 280 billion total government debt at end-December 2023. It is worth mentioning that in 2023 spending ran 16 percent ahead of budget.
This policy recalibration reflects a decision to make more use of the fiscal space to support strong non-oil economic growth and press ahead with economic and social priorities under the Vision 2030 strategic development plan. Saudi Arabia’s 2024 budget projects fiscal deficits over the medium term, of almost approximately 2 percent of GDP, was marking a shift away from the previous set of medium-term statistics that projected annual surpluses and a fall in government debt/GDP. At the banking industry level, the Saudi banking sector recorded a sound growth in 2023 and in the first quarter of 2024. Measured by the aggregation of assets of banks operating in the Kingdom, banking activity reported a growth of 9.3 percent in the year 2023 and by 3.9 percent in the first quarter of 2024. Likewise, deposits grew by 7.8 percent in 2023 and by 5.0 percent in the first quarter of 2024.
The noticeable growth was the one recorded in shareholders equity over the first quarter of 2024 growing by 13.5 percent, after a moderate growth of 5.9 percent throughout 2023. High interest rates and tight liquidity conditions have weighed on credit growth in Saudi Arabia’s banking sector, although it stayed robust at 9.7 percent in 2023. Also, after strong growth over the past few years, new mortgage lending has slowed somewhat. Economists believe that overall, Saudi Arabia is on track to meet many Vision 2030 targets, though some diversification goals are proving more challenging. Growth in the non-oil sector remains a key success, driven through higher domestic investment and improved competitiveness, with an expected 4.8 percent annual growth rate by 2030.
The Kingdom’s optimistic growth viewpoint, abundant projects, and regulatory improvements position it well for continued economic transformation, despite challenges in FDI and non-oil exports. As Saudi Arabia continues to build on its economic success, they believe this will be used to further accelerate Vision 2030 initiatives and fund ongoing megaprojects, counting the Kingdom’s $500 billion mega project, NEOM, which, once completed, will feature the world’s first floating marina, a mountain ski resort and a vast vertical city. It can be expected that the government will seek to reinvest this economic strength into new and existing projects, to expedite progression, attract more foreign investment, and fund ongoing and future developments.