Saudi Arabia’s economy slows in 1Q, hampered by oil activities

Saudi Arabia’s economy grew 3% y-o-y in 1Q 2026, according to Gastat’s final estimate (pdf). The reading marks a slight uptick from the 2.8% penciled in the state statistics agency’s flash estimates, but it’s still the slowest expansion since 2Q 2024 as the US-Israeli war with Iran and the closure of the Strait of Hormuz curtailed crude output.

Oil activities remained the primary drag on performance, expanding just 2.9% y-o-y during the quarter, down from 10.8% in 4Q 2025. Meanwhile, the upward revision came from the non-oil economy, which rose 2.9% y-o-y — the single largest contributor to annual growth at 1.7 percentage points.

The war’s impact was softened by infrastructure. Growth numbers are “not as bad” as they could have been, and we have the East-West pipeline to thank for that, MENA economist Hamzeh Al Gaaod tells EnterpriseAM.

On a quarterly basis, GDP shrank 1.2% q-o-q, a slight improvement from the 1.5% recorded in earlier flash estimates. Oil activities fell 6.8% q-o-q, lopping 1.6 percentage points off the quarterly figure, while non-oil and government activities each added 0.2 percentage points.

Standout sectors: The private sector, finance, ins., and business services booked the highest annual momentum, rising 5.4% y-o-y, followed by manufacturing — excluding petroleum refining — expanding 4.0% y-o-y. Crude petroleum and natural gas activities came in third, recording 3.6% y-o-y growth.

The outlook

The non-oil economy is showing signs of recovery but remains depressed. The Kingdom’s PMI rose to 52.8 in May, still weak by historic standards and consistent with non-oil GDP contracting again in 2Q, Capital Economics’ Jason Tuvey said in a note. Headline inflation held steady at 1.7-1.8% y-o-y, with few signs that supply-chain disruptions have triggered major shortages.

Forecasters diverge sharply on the full year. Tuvey is the most pessimistic, projecting a 4.5-5.0% contraction in 2026 even if the strait reopens soon — which would be the Kingdom's worst outturn since the 1980s. But he reckons the economy may now be past the worst, with 1Q coming in firmer than he had expected.

Al Gaaod is more optimistic, but with a caveat: “Expect similar growth numbers for the rest of the year, with an asterisk depending on when the strait opens,” Al Gaaod says, estimating that each month the strait remains closed shaves off some 0.2-0.6% off growth.

REMEMBER- The IMF recently lowered the Kingdom’s 2026 GDP growth forecast to 2%, down from the 3.1% projected in April. The revision assumes the persistent conflicts will continue to damage infrastructure, hamper trade routes, and fuel financial sector volatility.