Saudi non-oil growth held up in 2Q, and the state paid for most of it

Saudi Arabia’s non-oil economy grew 0.9% y-o-y in 2Q 2026, but that growth is narrow and leans harder on the state than the headline lets on, according to data from Gastat’s full 2Q GDP report (pdf). The growth figure came in above the 0.6% flash estimate we covered last month. Overall real GDP contracted 4.7%, dragged down by a 24.8% fall in oil activity as two blocked straits kept the Kingdom’s output restrained.

Two sectors are doing most of the lifting and both sit close to the government. Community, social, and personal services grew 4.1% y-o-y, the fastest of any activity, followed by finance, ins., and business services at 3.3%. Agriculture (+2.6%) and real estate (+1.6%) round out the top of the table. Manufacturing outside refining managed 0.9%.

The consumer-facing economy, meanwhile, shrank. Wholesale and retail trade, restaurants, and hotels contracted 2.0% y-o-y. Electricity, gas, and water also slipped 2%.

The spending breakdown points to the same source. Government final consumption jumped 5.0% y-o-y and gross fixed capital formation — the investment line — rose 2.7%. Private consumption grew just 0.8%. The figures put government spending and capital investment at the heart of growth, with household consumption playing a much smaller role. And both eased on the quarter: Government spending fell 2.0% and investment 1.4% versus 1Q, a sign the pullback in mega-project outlays is showing up in the accounts.

The state is the engine, and the state still runs on oil. Most of the non-oil growth traces back to public money — government consumption, the investment program, and the government-adjacent services topping the sector table — and that money comes from oil receipts. “Continuing dependence on oil revenues, directly or via their recycling into sovereign wealth and government-funded projects, remains the key risk,” Tellimer’s head of geopolitical risk and emerging-markets equity strategy Hasnain Malik tells EnterpriseAM, pointing also to “potential disruption to oil export volumes and higher defense spending from more fraught regional conflict risk.” In short, non-oil output funded by state spending carries the vulnerability of the revenue behind it.

The quarterly softening may be the point. Malik sees the rationalization of the domestic gigaproject pipeline as a deliberate trade-off, saying it “has hurt growth in the short term but allows for firmer footing on which to tackle these challenges.” The 2Q figures offer an early glimpse of that shift, with investment and government consumption easing from the previous quarter even as both remain up from a year earlier.

Trade took the hit as well: Exports fell 24.6% y-o-y in 2Q, while imports declined 14.8%.

REMEMBER- The outlook for the full year remains dependent on how quickly oil activity recovers. The IMF trimmed its Saudi outlook to 2% this year, while BMI has taken a more bearish view, forecasting a 1.3% contraction for 2026, followed by 7.6% growth conditional on an easing of Hormuz.