Saudi Arabia's first-quarter GDP grows by 3.4%, beating flash estimates

Saudi Arabia's Q1 2025 GDP grew 3.4% year-over-year, exceeding initial estimates of 2.7%, driven by a smaller-than-expected contraction in the oil sector (-0.5%) and stronger non-oil growth (4.9%). Despite lower oil prices and a widening budget deficit projected at 101 billion riyals ($27 billion), increased oil output and ongoing Vision 2030 projects continue to support growth, though analysts anticipate a potential pullback in government spending to manage the fiscal deficit, with some uncertainty about the degree of impact on non-oil sector expansion.

Analysis

Saudi Arabia's economy demonstrated unexpected resilience in the first quarter of 2025, with GDP growth reported at 3.4% year-over-year, surpassing the initial flash estimate of 2.7%. This outperformance was attributed to a less severe contraction in the oil sector, which shrank by 0.5% compared to the forecasted 1.4% decline, and more robust growth in the non-oil private sector, which expanded by 4.9% against an estimated 4.2%. Despite facing lower oil prices, currently around $60 per barrel while requiring over $90 per barrel to balance its budget according to the IMF, the kingdom's increased oil output, following OPEC+ decisions to raise production, may have mitigated the adverse impact. The nation is navigating a widening fiscal deficit, projected at approximately 101 billion riyals ($27 billion) for 2025, amidst substantial spending on its Vision 2030 economic transformation program, which includes large-scale development projects for events like the 2029 Asian Winter Games and the 2034 World Cup. While the Finance Minister indicated a review of spending priorities due to declining oil revenue, and some analysts anticipate a pullback in government expenditure that could temper non-oil growth, others maintain that existing project commitments will sustain high spending levels and support growth in the near term. This creates a mixed outlook, with strong current non-oil performance juxtaposed against potential fiscal constraints.

Key Decisions for Investors

• Monitor Saudi Arabia's oil production levels and global oil price trends, as these remain critical drivers for the fiscal balance and oil sector performance.
• Closely track government announcements regarding fiscal policy and spending priorities, particularly any adjustments to Vision 2030 project timelines, which could impact non-oil sector growth prospects.
• Evaluate investments in non-oil sectors with caution, balancing the strong Q1 2025 growth figures against the potential for future government spending constraints and the kingdom's ongoing efforts to manage its budget deficit.