Saudi economic growth likely to accelerate in 2025: Riyad Capital

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Saudi Arabia’s economic growth is expected to accelerate to 4.8% in 2025, compared to 1.2% in 2024 and -0.8% in 2023, Riyad Capital said in a recent report.

The brokerage expected solid growth in the non-oil activities, fostered by a growth-oriented fiscal policy, supported by the Public Investment Fund (PIF), focusing on increased investment spending, which will spur growth in the coming years.

“The extent of the Saudi economic growth recovery will also depend on the expected oil output expansion in 2025. In our baseline scenario, we assume that the planned unwinding of the voluntary output cut of 1 million barrels per day (bpd) will have to be partly extended into 2026. For 2025, we project an oil sector growth rate of 5.8% after an estimated –5.0% in 2024,” said the brokerage.

With a view on the expected expansionary fiscal policy pursued by the government in the following years, Riyad Capital projects a fiscal deficit of 2.9% of GDP for the current and next year.

Assuming that the 2025 fiscal deficit will be financed through local and international borrowing, the debt/GDP ratio is expected to rise to a moderate 29.5% by the end of 2025.

“The current account surplus is projected to gradually decline as a result of lower oil export revenues and still strong import growth on the back of robust domestic growth. For next year, we project a surplus of 0.7% of GDP after an estimated 1.2% in 2024,” said Riyad Capital.

The brokerage also expects inflation to remain tame, with an estimated 1.7% annual average rate for 2024. Inflation will moderately accelerate to 2% in 2025.

The US Federal Reserve will stay on a measured rate cut trajectory and forecast another 125 basis points in rate cuts until December 2025. Accordingly, the Saudi Central Bank (SAMA) is projected to cut its official repo and reverse repo rates by the same amount.

Given this baseline scenario for monetary policy, three-month SAIBOR is forecasted to decline from 5.4% to 5.15% by the end of the year and to 4.25% by the end of 2025, the brokerage added.