Since the launch of Vision 2030 in April 2016, Saudi Arabia’s GDP has surged by 70 percent, reaching around $1.1 trillion
Saudi Arabia’s Gross Domestic Product (GDP) is a critical indicator of the Kingdom’s economic health, representing the total value of all goods and services produced within its borders over a specific time frame. As of late 2023, Saudi Arabia’s GDP has surpassed $1.1 trillion, marking a significant achievement for the nation, according to report by the Federation of Saudi Chambers. This milestone highlights the Kingdom’s economic prowess and places it among the top economies globally, particularly within the G20 nations.
The Saudi economy has undergone a remarkable transformation in recent years, transitioning from an oil based economy to a more diversified economic structure. This change is largely driven by the government’s Vision 2030 initiative, which seeks to reduce the Kingdom’s dependency on oil and foster growth in various sectors, including tourism, technology, and renewable energy. The shift is crucial for ensuring long-term economic sustainability and resilience in the face of fluctuating oil prices.
Overview of Saudi Arabia’s economy
Saudi Arabia’s economy stands as the second-largest in the Middle East and ranks seventeenth globally. This economic powerhouse is predominantly driven by its petroleum sector, with oil contributing approximately 40 percent to the Kingdom’s GDP and accounting for about 75 percent of fiscal revenue in recent years. Despite this heavy reliance on oil, the economy is marked by significant income inequality, reflected in a Gini coefficient of 0.43 as of 2020. On the brighter side, the Human Development Index (HDI) for Saudi Arabia is 0.875, indicating a high level of human development and showcasing the country’s progress in improving the quality of life for its citizens.
Current trends in Saudi GDP
Recent economic data showcases a robust growth trajectory for Saudi Arabia’s GDP.
The surge in GDP can be attributed to several factors, including increased investment in infrastructure, a burgeoning private sector, and a strategic focus on enhancing production capabilities.
According to the Saudi General Authority for Statistics (GASTAT), the Kingdom’s GDP posted 8.7 percent in 2022 and 5.4 percent in the last quarter of 2023. In the second quarter of 2023, the GDP growth rate was particularly strong, driven by both the oil and non-oil sectors. Both the oil and non-oil sectors of Saudi Arabia contributed to the expansion. Non-oil activity expanded by 6.2 percent during 2023, while oil-related activities increased by 6.1 percent.
The fourth-quarter GDP expansion was Saudi Arabia’s seventh consecutive three-month growth after the COVID-19 pandemic slowed economic activity in OPEC’s biggest oil producer.
Saudi Arabia’s rapid GDP growth is nothing new. The kingdom’s GDP growth was 8.3 percent in 2021 and 8.8 percent in the third quarter of 2022. High oil prices aided Saudi Arabia’s GDP growth in 2022.
The high non-oil growth encourages Saudi Arabia’s aspirations to diversify its economy. Mohammed bin Salman, Crown Prince of Saudi Arabia, most recently unveiled an events investment fund with a focus on sports, entertainment, and other industries.
In a 2023 analysis, the New York-based credit-rating agency Fitch predicted that the Kingdom’s GDP growth rate would slow down to 3.3 percent this year and that less growth would be attributed to oil production.
Saudi Arabia’s estimates for 2023 indicated GDP growth of 3.1 percent, with inflation at 2.1 percent.
Historical GDP trends
Saudi Arabia’s GDP has seen notable fluctuations over the years, primarily influenced by the volatile nature of oil prices. From a nominal GDP of $234.8 billion in 2003, the Kingdom’s economy expanded to $932.8 billion by 2022, according to Worldometer. However, the GDP growth rate has not been consistent, with projections indicating a growth rate of 1.10 percent by the end of this quarter. Reports from the World Bank and the International Monetary Fund highlight that the real GDP growth rate has been significantly impacted by declining oil prices, leading to reduced government revenue and budget deficits. These fluctuations underscore the importance of economic diversification to stabilize growth.
IMF forecasts
Additionally, the International Monetary Fund (IMF) expected in 2023 the Kingdom’s economy to grow by 2.6 percent this year and by 3.4 percent in 2024.
The Kingdom’s commitment to diversifying its economy is reflected in the significant rise of the non-oil sector, which now accounts for approximately 52 percent of the total GDP. This diversification is critical for mitigating the risks associated with oil price volatility and ensuring a more stable economic environment.
The report from the Federation of Saudi Chambers emphasized that the Kingdom’s gross domestic product reached SAR4.155 trillion ($1 trillion) for the first time on September 23, 2023, ahead of the targeted date of 2025. This achievement illustrates the effectiveness of the government’s economic reforms and strategic initiatives.
Significant GDP growth since 2016
Since the launch of Vision 2030 in April 2016, Saudi Arabia’s GDP has witnessed a staggering 70 percent increase, reaching approximately $1.1 trillion, according to Khalid A Al-Falih, Saudi minister of Investment. The Vision 2030 initiative aims to address various economic challenges by promoting investment, fostering innovation, and enhancing the quality of life for citizens. The initiative encompasses a broad range of reforms across multiple sectors, including education, healthcare, and infrastructure, all aimed at creating a more sustainable and diversified economy.
Historically, the Kingdom’s economy has been heavily reliant on oil exports, which have accounted for a substantial portion of government revenues. However, as the global economy evolves and the demand for oil fluctuates, Saudi Arabia recognizes the need to adapt. By diversifying its economic base, the Kingdom aims to create a more resilient economy that can withstand external shocks.
Oil prices
Oil prices have traditionally played a significant role in shaping Saudi Arabia’s economic landscape. While Saudi Arabia faces economic challenges due to fluctuating oil prices, other countries benefit from lower gasoline prices, highlighting the diverse impacts of global oil market dynamics. The Kingdom is one of the world’s largest oil producers, and fluctuations in oil prices can have a profound impact on its GDP. A report from Moody’s indicated a 6.5 percent decrease in oil production from the beginning of 2023 to September of the same year. Despite this decline, oil remains the primary source of income for the Kingdom, underscoring the importance of the sector in the overall economy.
Crude oil production reached a peak of 11.0m barrels a day (b/d) in Q3 2022, a level that had only ever been exceeded in November 2018 and April 2020 (11.1m and 12.0m b/d respectively, according to official figures from OPEC reported by PwC.
However, the Saudi government is actively working to mitigate the risks associated with its reliance on oil. The ongoing reforms and diversification efforts are aimed at reducing the economy’s vulnerability to oil price fluctuations. By investing in renewable energy, tourism, and technology, the Kingdom is positioning itself to thrive in a post-oil world.
Non-oil economic contributions
The non-oil sector is increasingly becoming a cornerstone of Saudi Arabia’s economic growth. The aviation sector, for example, contributes approximately $53 billion to the GDP, demonstrating its potential as a significant driver of economic diversification. The Kingdom’s strategic investments in tourism, including the development of mega-projects like NEOM and the Red Sea Project, are expected to further enhance non-oil contributions.
The real estate sector is also showing resilience, accounting for 5.9 percent of the GDP with transactions reaching $169.5 billion, Economy Middle East reported in June 2024. The government’s focus on infrastructure development and urbanization is expected to sustain growth in this sector.
In addition to tourism and real estate, the Saudi government is making concerted efforts to boost the technology sector. Initiatives aimed at fostering innovation and attracting tech startups are expected to yield significant economic benefits in the coming years.
Non-petroleum resources sector
The non-petroleum resources sector in Saudi Arabia, though smaller compared to the oil sector, plays a crucial role in the Kingdom’s economic diversification efforts. This sector includes agriculture, mining, and manufacturing. Agriculture, focusing on dates, fruits, and vegetables, remains relatively modest. The mining sector, however, is more substantial, with significant activities in phosphate, bauxite, and gold extraction. Manufacturing, encompassing food processing, textiles, and chemicals, also contributes to the economy. Collectively, these non-oil activities account for approximately 20 percent of Saudi Arabia’s GDP. The government’s push towards power generation and other non-oil sectors is a strategic move to reduce the economy’s heavy dependence on oil.
Investment opportunities
Saudi Arabia presents a wealth of investment opportunities, particularly in its burgeoning non-petroleum sectors. The government has been channeling investments into telecommunications, petrochemicals, natural gas exploitation, and power generation. These sectors are ripe for growth and offer substantial returns. Additionally, the Kingdom is actively promoting foreign investment, with a keen focus on attracting foreign direct investment (FDI) in key areas such as manufacturing, logistics, and tourism. The Saudi Arabian General Investment Authority (SAGIA) reported a significant influx of FDI, totaling $7.3 billion in 2020, reflecting the country’s growing appeal to international investors.
Government initiatives
The Saudi government has been proactive in implementing initiatives to diversify the economy and boost non-oil activities. Central to these efforts is the Vision 2030 plan, which aims to reduce the Kingdom’s dependence on oil and increase the share of non-oil exports in GDP. The government is also fostering the development of the private sector, with a particular emphasis on small and medium-sized enterprises (SMEs). The Saudi Arabian Monetary Authority (SAMA) has introduced various measures to support the private sector, including the establishment of the Saudi Industrial Development Fund (SIDF) to finance industrial projects. These initiatives are pivotal in driving economic diversification and ensuring sustainable growth.
By maintaining a consistent tone and incorporating relevant data, these new sections will seamlessly integrate into the existing article, providing a comprehensive understanding of Saudi Arabia’s GDP, its trends, growth, and future outlook.
Future projections for Saudi GDP
Looking ahead, economic forecasts indicate that the non-oil sector will continue to play a crucial role in Saudi Arabia’s GDP growth over the next several years.
The IMF further lowered its GDP growth forecast for Saudi Arabia for 2024 to 1.5 percent and estimated growth to accelerate to 4.6 percent next year in its latest World Economic Outlook Report released in October.
In July, the IMF lowered its GDP projections for Saudi Arabia’s 2024 GDP by nearly a percentage point from its April estimates to 1.7 percent.
The Kingdom is the world’s top oil exporter and its public finances remain largely reliant on revenue from hydrocarbons although it has accelerated efforts to bolster non-oil growth and develop new income streams.
The IMF projects oil prices will rise by 0.9 percent in 2024 to about $81 a barrel. It has previously said Saudi Arabia needs prices at close to $100 per barrel to balance its budget.
PwC noted that while overall GDP growth is expected to be modest this year, because of oil production cuts, it is also expected to be 14 percent larger than in 2019.
The recent upgrade of Saudi Arabia’s credit rating by Moody’s reflects growing investor confidence in the Kingdom’s economic prospects. The positive outlook is largely attributed to the government’s persistent efforts to reform fiscal policies and implement comprehensive structural changes. These measures are expected to bolster the sustainability of economic diversification in the medium and long term.
“The upgrade reflects our assessment that economic diversification has continued to progress, and the momentum will be sustained,” Moody’s said in its statement.
Debt-to-GDP ratio to rise to 35 percent by 2030
Moody’s commended Saudi Arabia’s financial planning within the fiscal space, emphasizing its commitment to prioritizing expenditure and enhancing spending efficiency. Additionally, the government’s ongoing efforts to utilize available fiscal resources to diversify the economic base through transformative spending are instrumental in supporting the sustainable development of the Kingdom’s non-oil economy and maintaining a strong fiscal position.
The Saudi government has also ramped up debt issuances this year. Its debt-to-GDP ratio will likely rise to 35 percent by 2030, according to Moody’s. Even with the projected increase in debt, the Kingdom’s government debt will likely remain lower than Aa2-A1 peers by the end of 2026, and it will continue to benefit from the presence of sizeable government financial assets.
Despite the kingdom’s upgrade and positive fiscal indicators, “global growth and broader oil market developments are not conducive to high levels of public spending”, according to the Moody’s statement.
“A large decline in oil prices or production could intensify the trade-off between progress in economic diversification and fiscal prudence, potentially leading to a weaker sovereign balance sheet than we currently assume,” Moody’s added. Ongoing regional conflict may also pose risks for the sovereign’s outlook, according to the rating company.
Read more: Saudi Arabia commits $800 billion to tourism, aims for 10 percent sector contribution to economy by 2030: Minister
Non-oil GDP to expand by 4-5 percent
In its report, the agency noted that the planning and commitment underpin its projection of a relatively stable fiscal deficit, which could range between 2-3 percent of gross domestic product (GDP).
Moody’s expected the non-oil private-sector GDP of Saudi Arabia to expand by 4-5 percent in the coming years, positioning it among the highest in the Gulf Cooperation Council (GCC) region, an indication of progress in the diversification efforts reducing the Kingdom’s exposure to oil market developments.
In recent years, Saudi Arabia achieved multiple credit rating upgrades from global rating agencies. In September, S&P revised Saudi Arabia’s outlook to positive from stable due to a strong non-oil growth outlook and economic resilience.
These advancements reflect the Kingdom’s ongoing efforts toward economic transformation, structural reforms, and the adoption of fiscal policies that promote financial sustainability, enhance financial planning efficiency, and reinforce the Kingdom’s strong and resilient fiscal position.
Outlook for Saudi Arabia’s economy
Saudi Arabia’s GDP is undergoing a transformative journey, fueled by strategic initiatives and a commitment to economic diversification. The Kingdom’s focus on reducing its dependence on oil, coupled with its investments in non-oil sectors, positions it well for continued growth and resilience in the face of global economic challenges.
As the government continues to implement reforms and promote sustainable economic practices, the future outlook for Saudi Arabia’s economy remains optimistic. The emphasis on diversifying the economic base, attracting foreign investment, and enhancing the quality of life for citizens will play a pivotal role in shaping the Kingdom’s economic landscape in the years to come.
Saudi Arabia is not only aiming to solidify its position as a global economic leader but also striving to create a more sustainable and resilient economy that can thrive in a rapidly changing world. With favorable projections and ongoing reforms, the Kingdom is well on its way to achieving its ambitious goals under Vision 2030 and beyond.