Saudi Arabia continues to showcase its economic resilience with a robust non-oil GDP growth of 4.9% year-on-year in the second quarter, according to a recent report by Al Rajhi Capital Research. This impressive performance underscores the Kingdom’s successful diversification efforts away from its traditional oil-dependent economy. The positive trend is further supported by strong indicators in various sectors, painting a promising picture for the nation’s economic future.
Strong Indicators Driving Growth
The non-oil sector’s expansion is fueled by several key indicators that highlight the underlying strength of Saudi Arabia’s economy.
- Non-Oil PMI: Remains healthy, reflecting sustained job creation and a surge in new orders.
- Cement Sales: Increased by 4% year-on-year in September, signaling growth in construction and infrastructure projects.
- Consumer Spending: Rose by 7% year-on-year, indicating robust domestic demand and economic confidence.
These metrics collectively demonstrate a solid demand trend, reinforcing the Kingdom’s position as a growing economic powerhouse in the region.
Strategic Fiscal Policies for 2025
Al Rajhi Capital Research emphasized that Saudi Arabia’s preliminary budget for 2025 plays a crucial role in maintaining this growth trajectory. The expansionary fiscal policy outlined in the budget aims to:
- Enhance Infrastructure: Investing in roads, ports, and utilities to support industrial and commercial activities.
- Boost Energy Projects: Ensuring a reliable energy supply to power various sectors of the economy.
- Promote Manufacturing: Focusing on the restoration and expansion of the manufacturing sector to drive productivity and exports.
Fiscal Health Overview
| Fiscal Indicator | Status |
|---|---|
| Debt to GDP Ratio | Low |
| Fiscal Space | Significant |
| Budget Policy | Expansionary |
The Kingdom’s low debt to GDP ratio provides ample fiscal space, allowing for strategic investments without compromising financial stability. This prudent approach ensures that the influx of capital is effectively utilized to accelerate growth in key areas.
Oil Market Outlook Amid Geopolitical Tensions
While the non-oil sector shines, the oil market remains a pivotal component of Saudi Arabia’s economy. Al Rajhi Capital Research identifies two main factors shaping the oil market outlook:
- Geopolitical Tensions: Ongoing regional conflicts are expected to sustain upward pressure on oil prices throughout 2024.
- China’s Slow Demand: Reduced demand from China poses a potential challenge to oil price stability.
Despite these factors, Al Rajhi remains cautiously optimistic, forecasting oil prices to range between $75-80 per barrel. The upper end of this forecast is contingent on prolonged geopolitical tensions, which could further bolster oil revenues.
Implications for Pakistan’s Economy
The strong non-oil growth in Saudi Arabia also has positive implications for neighboring economies, particularly Pakistan. Increased Saudi investment can revitalize Pakistan’s industrial and commercial sectors, fostering sustainable economic growth. Mian Kashif Ashfaq, CEO of the Pakistan Furniture Council, emphasized the importance of strategic planning and transparency to maximize the benefits of this investment.
