BrazilThe state of Saudi Arabia's economy mid-way 2024
The growth of Saudi Arabia’s economy is expected to accelerate this year, according to a new report from Strategic Gears. Despite geopolitical concerns and high inflationary pressures elsewhere, the outlook for most other KSA economic metrics is also positive.
In its latest Economic Outlook report for Saudi Arabia, researchers from Strategic Gears unravel the Kingdom’s economic performance over the past year, and paint a picture of the nation’s future growth path based on a range of different economic and financial metrics.
A rundown on some of the key takeaways from the in-depth economic report:
Economic growth
After being stagnant in 2023 (growth rate of 0.03%), Saudi Arabia’s economy is expected to grow by 2.4% according to the IMF, an estimate below Saudi’s 4.4% projection in the 2024 budget.
Growth in emerging & developing economies is outperforming advanced economies:
The outlook sees Saudi Arabia buck the global trend, with the global economy remaining subdued. According to the IMF’s update issued in April, global economic growth is projected at a modest 3.2%. However, advanced economies are forecasted to book growth of a sluggish 1.7%, compared to emerging markets who combined will hit an average of 4.2% growth.
Diversification continues
As has been the case for decades, the export of oil continues to drive the majority of Saudi Arabia’s income, however, non-oil economic activity has over the past years grown considerably due to sectoral diversification strategies as part of Vision 2030.
Strategic Gears said in its report that this trend will continue in 2024, with year-on-year growth of non-oil economic activity reflecting a stable and persistent expansion.
Oil exporters achieve a higher growth rate than importers:
At the same time, the contribution of the oil sector to the economy is on a downward trend in 2023 and 2024, evidenced by a sharp and continued reduction in oil activities since 2022. Yet the decline in oil GDP in 2024 is expected to be less steep than in 2023, with the possibility of non-OPEC+ supply of oil falling short of expectations, triggering demand for Saudi output.
Across the Middle East and North Africa (MENA), net oil exporting countries will see stronger economic growth than net oil importers.
Private consumption
The consumption of Saudi Arabia’s 36 million inhabitants is a strong driver of economic growth in the Kingdom, with private consumption registering a remarkable 46% year-on-year increase in 2023, reaching a record high over the past two decades.
Private consumption has expanded over the years:
One proxy for measuring private consumption is point-of-sale (POS) and e-commerce transactions. Both indicators have shown continued appetite among consumers, enjoying an upward trend since 2017. This year has the potential of registering the largest e-commerce and POS transactions, with the value of sales in Q1 2024 dwarfing that recorded during the same period in 2021 by 200%.
Point of Sale (POS) transactions in Saudi Arabia:
In another green light for private consumption, the report noted that Saudi Arabia is expected to have the lowest inflation rate among G20 members, and among the lowest worldwide. “Due to the relatively low inflation level in 2024, private consumption is expected to remain on its upward trend this year.”
Foreign investment
A further driver of economic expansion is foreign direct investment (FDI), which plays a crucial role in supporting Saudi Arabia’s diversification goals and bolstering the country’s balance of payments.
According to data sourced from Invest Saudi, FDI inflows to Saudi Arabia amounted to SAR 19 billion last year, comparable to the number achieved in pre-corona year 2020. The nation’s all time record still stands in 2008, when foreign investors pumped SAR 141 billion into the Saudi economy.
FDI is recovering, but still is below peak levels:
The new National Investment Strategy aims to attract SAR 1.8 trillion in FDI inflows between 2021 and 2030, equivalent to SAR 200 billion a year, “yet at the present rate this seems too ambitious,” said the report’s authors.
Labour market
Vision 2030 aims to cut unemployment from 11.6% in 2015 to 7% by 2030. According to estimates from the General Authority for Statistics (GASTAT), the overall unemployment rate (Saudis and non-Saudis) fell to 4.4% in Q4 2023 compared with 4.8% in the same period of the previous year, demonstrating strong momentum in employment opportunities.
“Assuming that momentum from 2023 carries over, it is expected that employment growth will persist in 2024, with the private sector playing a significant role in generating job opportunities,” said the report.
Both Saudi male and female unemployment are at a record low:
Notably, the unemployment rate for Saudi nationals and females – two key targets in the labour market strategy – fell considerably over the years. The employment rate for women has now surpassed the 84% mark, with over 6 in 10 employed Saudi women working in the private sector.
Public debt
Despite the expected fiscal deficit in 2024 to finance non-oil developmental projects, public debt in Saudi Arabia remains sustainable. With the fiscal balance expected to be in deficit over the medium term until 2026, the Kingdom’s public financial management system is healthy, having a strong a credit rating profile, low debt-to-GDP ratio, significant foreign reserves, and momentum to diversify sources of income.
The Kingdom's public finances are healthy despite a deficit:
The report said that on aggregate, public debt will remain below Saudi’s debt ceiling of 50%.
Mega projects
While not a formal economic metric among economists, Strategic Gears’ report did give special mention to a number of initiatives that are playing a major role in triggering economic growth and diversification. These include the mega projects of Neom, Qiddiya, and the Red Sea Project, and the recent launch of five new special economic zones with investor-friendly regulations.
The Regional Headquarters (RHQ) Program also received special mention, with over 180 multinationals already having received an RHQ license since the scheme was launched in December last year by the Ministry of Investment.
Conclusion
Commenting on the state of the economy, the authors stated, “Saudi Arabia is making big strides in diversifying its economy and fostering a more conducive business climate. Through a series of strategic investments and reforms, the Kingdom is attracting foreign investment, empowering local businesses, and creating a vibrant entrepreneurial ecosystem. These initiatives aim to boost economic growth, reduce dependence on oil, and create new opportunities for investors.”
“This year shows promise in the travel, tourism, and hospitality sectors, as well as progress in green initiatives and healthcare. Saudi Arabia remains committed to Vision 2030 and carries a strong momentum to achieve its goals.”
