Reforms shield the Kingdom from the brunt of oil shocks: Saudi Arabia will see strong growth over the next two years, despite challenges like trade wars and low oil prices, IMF Middle East and Central Asia Director Jihad Azour told Al Arabiya commenting on the latest Regional Economic Outlook (pdf).

The drivers: Vision 2030 investments, job creation reforms, diversification, expanding women’s participation, and record-low unemployment are helping reduce oil dependency and oil shock vulnerability, Azour said.

BUT- Oil prices remain a major slice of the GDP pie: Azour noted that oil prices have dropped USD 7-10 below earlier estimates. A decline of USD 10 potentially cuts the balance of payments by 2.5-2.7%, and weighs down on budgets by 2.2-2.3% of GDP, leading to weaker surpluses and strained public finances in 2025.

ICYMI- The World Bank cut Saudi Arabia’s GDP growth forecasts to 2.8% for 2025 and 4.5% for 2026. Meanwhile, the IMF downgraded its forecast for the Kingdom to 3% for 2025, down 0.3 percentage points from its January estimates, and to 3.7% for 2026, down 0.4 percentage points. Saudi Arabia is now expected to show a larger deficit of 4% of GDP in 2025 and 4.3% in 2026.

Zooming out: The IMF significantly lowered its 2025 growth forecast for the broader MENA region to 2.6% from 4%, citing geopolitical issues, oil market volatility, weak demand, and trade uncertainty. Oil exporters in the region are now expected to grow by 2.3% in 2025, down from 4%, while importing economies are projected to growth 3.4% over the same period, down from 3.9%.

MEANWHILE- GCC economies are projected to outperform the region with a 3% growth in 2025, a downward from the previous 4.2% forecast due to extended Opec+ cuts and slower non-oil activity. Diversification in Saudi Arabia and the UAE will support medium-term resilience, the IMF said.

Risks remain tilted to the downside, Azour told Reuters, citing global trade tensions, declining oil prices, and regional conflicts. “Uncertainty could impact the real economy, consumption, [and] investment,” he said, though limited trade integration with the US may reduce direct tariff exposure. The report also flagged the conflict in Gaza and delayed reforms in Egypt as presenting headwinds regionally.

What could help: “Trade diversification, acceleration of structural reforms, and improvement of productivity are all elements that will help the non-oil sector to maintain a strong level of growth," Azour added.

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