This upward revision mainly reflects two key shifts. The oil sector’s contraction was less severe, shrinking by just 0.5 per cent instead of the previously forecast 1.4 per cent. Meanwhile, non‑oil activity grew by 4.9 per cent, notably above the flash estimate of 4.2 per cent. This performance underscores the resilience of the non‑hydrocarbon economy, which expanded across sectors such as wholesale, retail, transport, finance, and hospitality.
Monica Malik, chief economist at Abu Dhabi Commercial Bank, said the revision “was both due to a smaller annual contraction from the oil sector and stronger private sector growth”.
GASTAT’s breakdown shows that non‑oil growth contributed approximately 2.8 percentage points to headline GDP, while government activity added another 0.5 points. Industry analysts at Arab News reported that wholesale and retail trade, restaurants and hotels surged by 8.4 per cent year‑on‑year; transport, storage and communication by 6 per cent; and finance, insurance and business services by 5.5 per cent.
Private consumption increased by 4.5 per cent and gross fixed capital formation—an important indicator of business confidence—rose by 8.5 per cent, underpinned by a 5.2 per cent rise in government spending. The uptick in exports, with non‑oil exports climbing 9 per cent and merchandise exports overall rising 12.3 per cent quarter‑on‑quarter, helped narrow the trade deficit as imports fell by 10 per cent.
The oil sector’s unexpectedly modest shrinkage reflects a strategic increase in output that helped moderate the impact of lower global oil prices. Despite crude prices hovering around $60 per barrel, Saudi Arabia is continuing to ramp up production, in alignment with OPEC+ decisions to extend output increases in May, June and July—each by around 411,000 barrels per day.
However, this production strategy has fiscal implications. The International Monetary Fund estimates that Saudi Arabia needs oil prices above $90 per barrel to balance its 2025 budget, which currently shows a projected deficit of approximately 101 billion riyals.
That deficit has led Finance Minister Mohammed Al‑Jadaan to signal a reassessment of government spending. Malik anticipates “some pullback in government spending to limit the widening of the fiscal deficit, which will likely weigh on non‑oil growth”. Conversely, Emirates NBD senior economist Daniel Richards believes that existing mega‑projects and infrastructure investment will sustain growth through 2025 and into next year.
These investments align with the kingdom’s Vision 2030, an ambitious transformation agenda aimed at reducing dependence on oil through diversifying into sectors like tourism, entertainment, finance and technology. Major ongoing initiatives include the NEOM smart city, Red Sea tourism developments, Qiddiya entertainment complex, and infrastructure for upcoming global events—such as the 2029 Asian Winter Games and the 2034 FIFA World Cup, which calls for construction of 11 new stadiums and renovations elsewhere.
Despite positive growth, challenges loom. Non‑oil business activity showed signs of slowing in April, with the Riyad Bank Purchasing Managers’ Index falling to 55.6 from 58.1 in March—the lowest level since August 2024. The slowdown was driven by a dip in new order intake, though employment remained at a more-than-decade high.
Global economic headwinds, such as trade uncertainty and energy market volatility, continue to pose risks to private sector momentum.
The IMF has trimmed its growth forecast for 2025 to 3 per cent—down from 3.3 per cent earlier—citing oil price fluctuations and potential cooling in state-driven expenditure. A Reuters poll suggests Brent crude may average around $69 per barrel this year—well below the breakeven threshold required by Saudi public finances.
The kingdom’s first‑quarter performance offers a clearer picture of its evolving economic structure: the oil sector is softening, but non‑oil industries demonstrate dynamism and diversification, aided by strategic investments and flagship development projects. Yet fiscal sustainability remains contingent on both global oil markets and prudent budget management.
Topics
Spotlight