Saudi Arabia’s non-oil economy is forecast to grow more than 4.0% in 2025, compared to an estimated growth rate of 4.3% in 2024, the National Bank of Kuwait (NBK) said in a report (pdf). The lender’s positive growth outlook is “underpinned by a strong investment drive, reform progress, rising FDI and employment, and promising momentum in strategic sectors such as tourism, manufacturing, and transport/logistics,” according to the report. Government investments as the Kingdom builds up toward the 2027 Asian Cup, Expo 2030, and the 2034 World Cup, are also underpinning the bank’s expectations.

The non-oil economy is playing an increasingly large role in overall GDP: The non-oil sector’s share of GDP hit a record high of 51% in 2024, according to official preliminary estimates cited in the report. Non-oil growth hit 4.6% y-o-y in 4Q 2024, pushing up total non-oil growth for 2024 to an estimated 4.3%.

Growth could come in at an even higher rate than NBK expects: “The non-oil economy will grow by 4.8% in 2025 as the PIF reallocates capital towards domestic projects aligning with Vision 2030 goals, providing a significant boost to investment. Meanwhile, consumers will continue to benefit from structural improvements in the labor market,” Fitch Solutions’ research unit BMI said last month.

ICYMI- The Kingdom’s non-oil activity expanded to an over decade-high level to kick off the year in January, with our PMI headline figure coming in at 60.5 during the first month of the year, before new business growth cooled slightly to bring the figure down to 58.4 in February. Despite the PMI reading drop, business confidence in Saudi Arabia reached its highest level in 15 months last month, as businesses conveyed optimism over economic growth and government initiatives that could help support their development and expansion.

Certain sectors in the non-oil economy are making considerable progress: Sectors like wholesale and retail trade, construction, manufacturing, and transport are seeing noticeable output gains that have been facilitated by a significant increase in domestic investment as part of the National Investment Strategy (NIS), according to NBK.

REMEMBER- The NIS aims to boost Saudi Arabia’s GDP by SAR 6.8 tn and increase cumulative investment volumes by SAR 12 tn by 2030, which would position the Kingdom among the world’s largest 15 economies. Other targets the NIS aims to achieve by 2030 include reducing the unemployment rate to 7%, raising non-oil exports contribution to the GDP to 50%, and increasing the private sector’s share of GDP to 65%. The NIS also targets boosting FDI inflows to account for 5.7% of GDP, or SAR 388 bn.

Saudi manufacturing looks to have rebounded in 2024, after having slowed in 2023 due to “a combination of base effects and weaker petrochemicals demand in China,” with output having grown by an average of 2.6% in 9M 2024. The sector is also expected to expand its activity to include industrial and military equipment manufacturing, as well as renewable energy and metals and minerals mining.

Reforms will help boost FDI and overall growth even further: “Ongoing reforms aimed at enhancing the effective execution of laws, streamlining procedures and fees, raising the participation of women in the labor force, facilitating access to land and finance, and improving governance should further promote private sector expansion, draw in more FDI and support overall productivity growth,” the report reads.

Some risks remain — but the overall outlook is positive: Falling oil prices could pressure the government’s fiscal position and widen the SAR 101 bn deficit it penciled for 2025, potentially leading to the scaleback of some projects, reads the report. Other risks include US rate cuts lagging behind expectations and new US tariffs, which could drive up import costs and add inflationary pressures. A significant reduction in spending appears to be unlikely, as alternative funding sources, a well-capitalized sovereign wealth fund, ample reserves, and a relatively low debt-to-GDP ratio provide financial flexibility, according to NBK.

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