Saudi real GDP likely to grow 2.2% in 2024: S&P Global

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S&P Global Ratings expects the real GDP of Saudi Arabia to grow by 2.2% in 2024, before rising further by 5% in 2025.

In its latest report, the rating agency said that the surge in the non-oil sector will contribute an increasing share of this growth. This was attributed to government-led investments in Vision 2030 projects.

Part of the investments in the Saudi-led transformation programs will come from the government and the Public Investment Fund (PIF), S&P Global said. However, it also projects banks and capital markets to contribute a significant amount.

“In our view, this will inevitably increase leverage in the Saudi private sector and the broader economy, albeit from low levels. The pace and extent of the increase in leverage in the corporate sector remain uncertain,” it wrote.

While larger companies still have “relatively good access” to international capital markets, higher interest rates for an extended period and geopolitical risks translate into higher price differences for smaller ones. This means that banks must seek alternative ways to finance their growth, the report added.

The growth of lending in the Saudi banking system over the past five years was mainly propelled by the rise in mortgage loans. “This is one reason why we haven't seen lending growth translate into a material increase in publicly listed corporate debt,” it explained.

It further stated, “In addition, companies in Saudi Arabia have been cautious about committing to large capital expenditure due to high interest rates.”

The agency further indicated that although listed companies’ leverage remains “manageable”, debt is expected to accumulate in the private sector, among unlisted entities, which supports strong corporate growth.

S&P Global also pointed out that the structure of corporate balance sheet debt is changing amid higher contribution of international debt versus domestic debt.

According to the report, Saudi Arabia’s banking sector maintains a robust position, characterized by strong asset-quality indicators and overall capitalization. It suggested that the banks’ sound profitability and conservative dividends will continue to support their capitalization over the next year or two.