Saudi economic growth likely to further accelerate in 2025: Riyad Capital

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Riyad Capital said, in its “Saudi Economic Chartbook” report, it projects continued solid growth for non-oil activities, fostered by a growth-oriented fiscal policy, supported by the Public Investment Fund (PIF), with a focus on increased investment spending which will spur growth in the coming years.

The brokerage forecasts non-oil activities to accelerate to 4.8% in 2025, compared to 1.2% in 2024 and -0.8% in 2023.

“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 1mbd will have to be partly extended into 2026. For 2025, we, therefore, project an oil sector growth rate of 5.8% after an estimated –5.0% in 2024,” said the brokerage.

“As a consequence, we forecast overall economic growth to accelerate to 4.8% in 2025 after estimated 1.2% in 2024 and –0.8% in 2023,” it added.

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

It also noted that, assuming that the 2025 fiscal deficit will be financed through local and international borrowing, the Debt/GDP ratio is expected to rise to a still moderate 29.5% by 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 generally remain tame, saying that, after an estimated 1.7% annual average rate for 2024, inflation will moderately accelerate to 2.0% in 2025.

The US Federal Reserve to stay on a measured rate cut trajectory and forecast another 125bp in rate cuts until December 2025. Accordingly, SAMA is projected to cut its official repo rate and reverse repo rate by the same amount, said Riyad Capital.

Given this baseline scenario for monetary policy, 3M SAIBOR is forecasted to decline from currently 5.4% to 5.15% by end of this year and to 4.25% by end of 2025, it added.