Saudi Arabia's economy grows 2.1% in Q2 as oil output rises

Saudi Arabia's economy expanded 2.1% quarter-on-quarter in Q2 2025, accelerating from Q1, driven predominantly by a 5.6% surge in oil GDP as production cuts were unwound. While private non-oil GDP grew 1.6% QoQ, its year-on-year growth decelerated slightly, and government activities contracted 0.8% QoQ, reflecting reduced spending. This oil-led recovery is projected to continue, potentially masking underlying softness in the non-oil sector through the second half of the year.

Analysis

Saudi Arabia's economy demonstrated accelerated growth in the second quarter of 2025, with quarter-on-quarter GDP expanding by 2.1%, up from 1.1% in the prior quarter. This improvement was almost entirely driven by the oil sector, which surged 5.6% quarter-on-quarter—its most rapid expansion in four years—as OPEC+ began to unwind production cuts. In contrast, the non-oil economy shows signs of moderating momentum. While private non-oil GDP grew by a solid 1.6% quarter-on-quarter, its year-on-year growth rate decelerated from 4.9% to 4.7%. More notably, government activities contracted by 0.8% for the quarter, the weakest performance in two years, likely reflecting a policy shift toward reduced spending on major projects as oil prices have softened. The near-term outlook suggests continued acceleration in headline growth driven by rising oil output, but this trend may mask underlying softness in the domestic, non-oil portion of the economy.

Key Decisions for Investors

• Investors should recognize the dual-track nature of the Saudi economy; the positive outlook is heavily skewed towards oil-related assets due to rising production, while non-oil sectors may face headwinds from slowing private growth and fiscal consolidation.
• The 0.8% contraction in government activity signals potential risks for companies reliant on public spending and gigaproject contracts, warranting a cautious stance on the construction and infrastructure sectors.
• While headline GDP is accelerating, the dependence on oil output introduces volatility, suggesting a selective investment approach is more prudent than broad exposure to the entire Saudi market.