Non-oil economy, budget deficit, cooling inflation: The 2025 macro mix

Saudi Arabia’s economy found its second gear in the back half of 2025, as a recovering oil sector began to complement a consistently growing non-oil economy, setting up the country’s GDP to continue on an upwards trajectory.

By the numbers: Real GDP growth accelerated to 4.8% in 3Q 2025, compared to 3.9% in 2Q and 3.4% in 1Q. The sustained growth puts the Kingdom on track to hit the Finance Ministry’s 4.4% full-year target, accelerating from an overall growth rate of 2.7% y-o-y in 2024.

How this compares to forecasts: The World Bank and Fitch’s BMI have both penciled in GDP growth coming in at 3.8% this year. Meanwhile, the IMF is more optimistic with its growth forecasts, expecting to see a 4.0% clip in 2025.

Non-oil growth led the way

The growth came despite a year of falling oil prices and was driven instead by the burgeoning non-oil economy. The oil sector took the lead in 3Q 2025 with a growth rate of 8.3% y-o-y, pushing the overall GDP to its highest level of the year. This uptick in oil GDP mirrors higher production levels as the Kingdom began unwinding Opec production cuts.

This gave a massive boost to a non-oil economy that had already been doing the heavy lifting: Non-oil growth came in at 4.9% in 1Q 2025 and 4.6% during the second quarter of the year. For the non-oil private sector, expansion was also sustained throughout the year, peaking in February with a seasonally adjusted purchasing managers index figure of 60.5, the second fastest level since September 2014. The PMI figure then averaged between 55-60 throughout the year and reached its second-highest reading of 60.2 in October.

The budget tells a more complex story

The deficit ballooned to SAR 88.5 bn in 3Q 2025 — its highest in five years — driven by a 13% y-o-y drop in total revenues and a 6% rise in spending. The Finance Ministry repeatedly signaled that the deficit was a choice and that the government is willing to sustain higher deficits through 2028 to invest in the economy and unlock private-sector growth, as long as returns exceed borrowing costs.

Meanwhile, inflation remained the macroeconomic success story of the year: Annual inflation came in at an average 2.0% through November, EmiratesNBD recently noted, putting it just below the Finance Ministry’s expectation of a 2.3% average annual rate for 2025. The contained inflation rate was also supported by Crown Prince Mohammed bin Salman approving a five-year rent freeze in Riyadh. The major policy intervention effectively put a ceiling on the Kingdom’s biggest inflationary pressure: Housing.

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