Saudi Arabia:  Saudi Arabia’s economy is forecast to grow 4.4 percent in 2025, driven by strong non-oil sector momentum and easing oil production cuts, according to the projections.

The Institute of Chartered Accountants in England and Wales highlighted that this marks a rebound from the 1.4 percent growth expected in 2024, supported by a 5.8 percent increase in the non-oil sector.

Similarly, the Organization for Economic Co-operation and Development projects Saudi Arabia’s gross domestic product growth at 3.6 percent in 2025 and 3.8 percent in 2026.

ICAEW emphasized the non-oil sector as a key growth driver across the Gulf Cooperation Council, with industries like tourism, real estate, and finance at the forefront.

Regional outlook

GCC economies are expected to grow at an annual rate of 4 percent over the next five years, more than double that of advanced economies.

Scott Livermore, ICAEW’s economic advisor, said: “The GCC’s projected 4 percent growth in 2025 highlights the success of the region’s diversification efforts amid global challenges.”

He added: “Managing capacity constraints in these high-growth sectors and navigating global uncertainties will be critical to sustaining long-term economic stability.”

Strong investments in construction, tourism, and infrastructure, coupled with rising oil production from 2025, are anticipated to bolster growth.

Saudi Arabia’s economy is undergoing a significant transformation, with Vision 2030 spearheading efforts to reduce oil dependence and diversify economic activities.

Reforms, including regulatory changes and infrastructure investments, are strengthening non-oil industries and attracting both domestic and foreign investments. This transformation is positioning the Kingdom for long-term economic stability, supported by growing oil production and a thriving non-oil sector.

The GCC region is also projected to experience robust growth, driven by government-led diversification initiatives that are accelerating economic expansion.

According to an ICAEW report, the regional Purchasing Managers’ Index remains in expansionary territory, indicating sustained momentum in non-energy sectors. This growth is expected to result in a 4 percent expansion in industries such as tourism, real estate, and finance in both 2024 and 2025.

These developments highlight the successful implementation of strategies aimed at reducing oil dependence and fostering sustainable, diversified economic growth across the region.

Oil production recovery

ICAEW projects that Saudi Arabia’s oil production will rise by 3.4 percent in 2025, recovering from 2024’s production cuts, which reduced output to around 9 million barrels per day.

This rebound is expected to boost GDP growth in oil-dependent economies such as Kuwait and Oman. However, the region faces challenges from the global shift toward cleaner energy and the development of renewable projects, which add complexities to long-term oil strategies.

OPEC+ members, including Saudi Arabia, have been withholding a combined 5.86 million barrels per day of oil output — around 5.7 percent of global demand — through a series of cuts initiated in 2022 to stabilize the oil market.

OPEC+ is scheduled to meet on Dec. 5, with expectations of extending the current output cuts until the end of the first quarter of 2025 to maintain market support.

Inflation and interest rates

ICAEW anticipates that interest rates in the GCC, which have been aligned with the US Federal Reserve’s monetary policy, will continue to ease into 2025.

After two years of aggressively tightening monetary policy to combat inflation, GCC countries lowered rates by 50 basis points in September and 25 basis points in November.

While this easing of interest rates is expected to stimulate lending, it has also contributed to rising real estate prices, as lower borrowing costs make it easier for individuals and businesses to secure financing.

However, the effects on the real estate market and corporate lending have been mixed. The lower rates have fueled increased demand, particularly in major cities like Riyadh, which has led to higher property prices and rents.

In Saudi Arabia, rental prices have been a key driver of inflation, particularly as the growing population and urbanization have intensified the demand for housing. As a result, inflation is forecast to rise from 1.7 percent in 2024 to 2.3 percent in 2025, with rents expected to remain a significant contributor, according to ICAEW.

State Street Global Advisors forecasts a “soft landing” in 2025, with the economy growing gradually without a sharp downturn, balancing inflation control with sustainable growth. This scenario aims to avoid major negative impacts such as high unemployment or a sharp decline in consumer spending.

Debt levels and fiscal flexibility

Saudi Arabia’s budget deficit is projected to persist, with ICAEW estimating a shortfall of 2.8 percent of GDP in 2024. However, the country's low government debt levels provide flexibility to fund key Vision 2030 initiatives and infrastructure projects.

The Kingdom’s 2025 budget, approved in early November, forecasts revenues of SR1.18 trillion and expenditures of SR1.28 trillion, resulting in a deficit of SR101 billion.

These deficits are within manageable, planned levels, strategically designed to support the government’s expansionary spending on key projects aimed at diversifying the economy.

Saudi Arabia also maintains a strong credit rating from international agencies, reflecting its fiscal stability and investor confidence, which bolsters its capacity to finance these expansionary projects.

Across the GCC, most countries are expected to maintain manageable debt levels, with sovereign wealth funds and other financial tools helping bridge budget gaps.

According to State Street Global Advisors, the GCC’s economic diversification efforts have led to a significant increase in fixed income issuance, with outstanding bonds surpassing $1.35 trillion by September, more than tripling since 2019.

Notable growth in local currency bonds, sukuk, and green bonds reflects the region’s commitment to economic diversification and sustainability.

GCC bonds have outperformed the broader JP Morgan EMBI Global Diversified Index, offering lower volatility and drawdowns compared to other emerging market bonds, making them attractive to investors, according to their report.

Capital market expansion

The GCC is undergoing a significant transformation in its capital markets, with Saudi Arabia at the forefront.

According to State Street Global Advisors, GCC equities have outperformed the broader emerging markets index over the past decade, despite global challenges. This outperformance is attributed to the region’s economic resilience and successful diversification efforts.

GCC equities also exhibit a low correlation with oil prices and both developed and emerging markets, offering distinct sectoral exposure. The stability of dollar-pegged currencies further reduces currency risk, making GCC equities an attractive investment in volatile global markets.

Saudi Arabia’s stock market has grown to become the seventh-largest globally, reflecting the strength of the real economy.

Key reforms in the sector, including new regulatory frameworks, have increased liquidity and market accessibility.

Saudi Arabia’s inclusion in the MSCI Emerging Markets Index and the expansion of local equity offerings have been pivotal milestones. Additionally, the introduction of sukuk and green bonds has diversified the investment landscape, drawing international investors.

The ongoing integration of Saudi capital markets with global markets, coupled with Vision 2030 reforms, has positioned the Kingdom as an attractive destination for international investors, signaling a shift toward greater economic diversification and sustainability.