Saudi GDP shrinks on the oil drag, even as non-oil economy ekes out growth

The non-oil economy is eking out growth, but it’s not enough to offset the oil slump. Non-oil growth came in at 1.9% y-o-y in 3Q 2026, while the overall economy contracted 3.8% y-o-y on the back of a 20.4% drop in oil activity, according to Gastat data (pdf). The contraction came as real GDP shrank 4.8% last month.

The quarterly view shows a recovery taking shape, with oil doing most of the work. Seasonally adjusted real GDP grew 1.3% q-o-q in 3Q, with oil activity rebounding 5.7% and non-oil activity expanding 0.6%. Government activity was the only major component to contract, falling 1.2% q-o-q.

OUR TAKE- Oil is now doing the work that state spending did earlier in the year. The quarterly rebound in oil activity points to the sector working through the production and export disruption, while government activity is contracting on both measures after underwriting non-oil growth through 1H. Non-oil growth came in at a 0.6% q-o-q clip as the fiscal contribution turned negative, which leaves the recovery resting on crude volumes returning rather than on the state topping up demand.

The disruption behind the annual figures is the eight-month US-Iran war, which has restricted shipping through the Strait of Hormuz, hitting oil production and exports, as well as Houthi attacks on airports and energy facilities. The Kingdom has partly mitigated the disruption by rerouting crude shipments through its East-West pipeline to Red Sea ports.

REMEMBER- The IMF expects Saudi Arabia’s economy to contract by 3.3% this year, before rebounding to 7.9% growth in 2027. The Fund attributed the slowdown to disruptions to hydrocarbon production, shipping, and broader economic activity amid the Gulf conflict. S&P Global Rating affirmed the Saudi economy at A+ with a stable outlook, with a 0.9% contraction forecast for the year.