Saudi Arabia’s non-oil gross domestic product (GDP) is forecast to grow 4.5 percent in 2024, higher than last year’s growth of 4.4 percent. In its latest report, Jadwa Investment said that Saudi Arabia continues to witness stable and modest consumer price growth amid slowing global inflation, with an increase of just 1.6 percent during the first half of 2024. Therefore, it expects inflation to be lower than it previously anticipated, rising to 1.7 percent this year.
Non-oil to grow further
Saudi Arabia’s domestic economy continues to grow robustly. Flash estimates revealed that the country’s real non-oil GDP expanded by 4.4 percent in Q2 of 2024, up from 3.4 percent in Q1. Domestic trade, construction and transport continued to support this growth.
In Q1, Saudi Arabia’s non-oil manufacturing rose 0.7 percent mainly due to a slowdown in petrochemical growth. Meanwhile, domestic manufacturing demand remains strong with a significant rise in factory numbers across the Kingdom.
“Wholesale and retail trade now comes in as the largest by size in Saudi Arabia’s non-oil GDP, surpassing non-oil manufacturing, due to impressive growth over the past few years, the report added. The sector expanded by almost 6 percent in Q1 and now accounts for over 21 percent of the Kingdom’s non-oil GDP and 11 percent of the overall GDP.
Therefore, Jadwa Investment expects Saudi Arabia’s non-oil GDP to further accelerate during the second half of the year, particularly in Q4.
Crude production to contract more sharply
Jadwa Investment added that amid the rise in Saudi Arabia’s non-oil GDP, it expects the country’s crude production to contract more sharply in 2024 than it previously expected.
According to OPEC+’s latest meeting, the current Saudi output of nine million barrels per day will extend till the end of Q3 and gradually increase in the following 15 months. As a result, the firm expects Saudi production to average around nine million barrels per day in 2024, before rising to 9.5 million barrels per day in 2025.
“Overall, therefore, we see hydrocarbons GDP contracting this year by around 6 percent in real terms, which will mean the overall economy grows by 1.5 percent,” added the report.
The report also revised its oil price forecast, saying that Brent crude will average $84 per barrel in 2024, broadly in line with the average over the last 18 months. However, it expects the prices to decline to $82 per barrel in 2025 due to challenges to global GDP growth and oil supply gains.
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Budget deficit to record SAR83 billion
The report reveals a relatively stable fiscal forecast, with a budget deficit of SAR83 billion or 2 percent of Saudi Arabia’s GDP in 2024, similar to last year’s levels. The report expects that in 2025, the budget deficit will widen to 2.5 percent of GDP, as higher spending outweighs further gains in non-oil revenue.
“Oil revenue will likely come in at similar levels, while higher non-oil budget revenue and higher government spending will largely cancel each other out,” Jadwa Investment added. Higher dividends from Aramco will likely be a key support for oil revenue in 2024.
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