Capital Economics released an analysis on Saudi Arabia's economic outlook, projecting subdued growth into 2025. The firm's forecast is based on the country's continued conservative oil policy and a shift towards fiscal consolidation.
The final estimate of Saudi Arabia's GDP growth showed a deceleration in the pace of expansion from 1.4% quarter-on-quarter in the second quarter to 0.9% in the third quarter. Despite this, year-on-year GDP growth accelerated from -0.3% in the second quarter to +2.8% in the third quarter.
The detailed sectoral analysis revealed that in the third quarter, both the oil and private non-oil sectors experienced growth, by 1.2% and 0.7% quarter-on-quarter respectively. However, government activities saw a contraction of 0.3% over the same period.
The oil sector's contribution to GDP is expected to remain limited in the coming months, with OPEC+ extending current production levels until April, keeping oil production around 8.9 million barrels per day with year-on-year growth remaining largely flat.
In contrast, the non-oil economy displayed more resilience. Private sector credit growth inched up from 12.2% year-on-year in September to 12.5% in October. Additionally, mortgage lending increased, and the growth of local cement deliveries, a construction sector indicator, rose from 1.5% to 2.1% on a seasonally adjusted three-month basis from September to October.
Despite these positive signs, high-frequency survey data suggest a softening towards the end of the year. Consumer confidence, as measured by Ipsos/Refinitiv, hit a six-month low, and although the November PMI survey showed a peak since April 2023, the breakdown indicated a decline in the output component and a slowdown in domestic new orders.
Weekly point of sale transaction data also pointed to slightly softer growth in November and the first week of December.
Looking ahead to 2025, Capital Economics predicts that while GDP growth will accelerate, it will do so at a slower pace than many anticipate. With oil output cuts expected to unwind gradually from April, oil production is forecasted to rise by only 5% by the end of next year.
Furthermore, the expectation of oil prices retreating back to $70 per barrel will likely result in weaker state oil revenues, necessitating continued tight fiscal policy. Consequently, Capital Economics expects the Saudi economy to grow by 2.8% in 2025, a figure that falls below the consensus.
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