IMF trims Saudi outlook to 2% as conflict risks linger

The IMF believes Saudi Arabia can withstand the immediate shock from the conflict, but not indefinitely. The longer the conflict lasts, the more the risk shifts from short-term logistics to longer-term growth and investment, according to a statement from the multilateral lender. The fund consequently lowered its 2026 GDP growth forecast to 2%, from the 3.1% it projected in April.

“The main risk is an escalation of the conflict, which could further impair shipping routes, damage energy infrastructure with associated output losses, and heighten uncertainty and financial sector risks,” said mission head Azim Sadikov.

So far, our buffers are limiting the fallout: The Kingdom has kept oil flowing by rerouting exports through the East-West pipeline and Red Sea ports, helping offset disruptions in the Strait of Hormuz. Higher oil prices are also expected to compensate for lower export volumes, while low debt, ample reserves, and the PIF provide additional protection against the economic impact of the conflict.

But there’s potential for a turnaround: Assuming shipping conditions normalize in the coming months, the IMF expects growth to recover. This stabilization would breathe back life into the non-oil activity fueled by strong domestic demand, stable government jobs, and steady public and private investment.

MEANWHILE- The fund left its inflation forecast unchanged at 2.3%, although higher shipping and ins. costs are expected to add some price pressures.

The IMF isn't calling for stimulus just yet: The fund says a modest reduction in the non-oil primary deficit remains appropriate in 2026, arguing that any support measures should come through reprioritizing existing spending rather than disrupting the pipeline of public investment projects.