ECONOMY

SAUDI FINE-TUNES POLICIES IN BID TO SUPERCHARGE THE ECONOMY

Saudi Arabia has made an “impressive effort” to overhaul its business environment and eliminate regulatory barriers, which was lauded and encouraged by the International Monetary Fund (IMF).

“The implementation of the new law on civil transactions adopted in January 2024 is expected to provide greater certainty, predictability, and reliability in contract enforcement (including in construction and employment), financial transactions, property rights, and dispute resolution,” the fund noted in its latest report on the kingdom. 

The predictability for investors will be enhanced by the forthcoming adoption of the investment code, which will provide a level playing field for Saudi and non-Saudi investors by protecting investors’ rights, the IMF noted. 

“The ongoing work on the commercial transactions and the consumer protection laws are also expected to strengthen the legal framework and improve market functioning. Ensuring proper application of these laws – including through proper training of the judiciary and by issuing implementing decrees – would be essential.”

The IMF expects Saudi’s GDP to grow 1.7% in 2024 and 4.7% in 2025, with non-oil GDP driving growth owing to gains of 3.5% and 4.4% in 2024 and 2025, respectively. 

First quarter indicates a moderation in non-oil economic activity as private investment growth stabilises. However, strong domestic demand is projected to sustain non-oil GDP growth, which includes government activities, at 3.5% for 2024.

Real GDP decreased by 0.3% in the second quarter compared to the same quarter of 2023, according to the General Authority for Statistics (GASTAT).

“Seasonally adjusted real GDP grew by 1.4% compared to the first quarter of 2024. Non-oil activities increased by 4.9% Y-o-Y and 2.1% Q-o-Q. Government activities grew by 3.6% Y-o-Y and 2.3% Q-o-Q. In contrast, oil activities declined by 8.9% Y-o-Y, while they increased by 0.9% Q-o-Q.”

Most economic activities recorded impressive growth rates on an annual basis. Electricity, gas, and water activities achieved the highest growth rate in Q2/2024, amounting to 8.9% Y-o-Y and 2.7% Q-o-Q, followed by financial services, insurance, and business services activities, which grew by 7.1% Y-o-Y and 1.8% Q-o-Q. Additionally, wholesale and retail trade, restaurants, and hotel activities expanded by 6.8% Y-o-Y and 1.5% Q-o-Q.

INVESTMENT MOMENTUM

Non-oil reform momentum is expected to accelerate in 2025, driven by increased investment, particularly from the Public Investment Fund (PIF), which plans to raise its annual investments from USD 40 billion to USD 70 billion, the IMF noted. 

This surge in investment will coincide with preparations for major events such as the 2027 Asian Cup, the 2029 Asian Winter Games, and the 2030 World Expo.

Non-oil GDP growth is expected to remain within the 3.9% to 4.4% range. However, full implementation of the National Investment Strategy (NIS) could push non-oil GDP growth to as much as 8%, depending on the investment multiplier, according to IMF estimates. The non-oil output gap is anticipated to widen modestly until 2025, before closing by 2029 as productivity improvements – driven by digitalisation and labour reforms – push non-oil potential growth above actual growth.

BUSINESS SENTIMENT

In August, Saudi Arabia's non-oil private sector continued to experience  improved business conditions, with companies ramping up eorts to enhance operational capacity. The latest Standard & Poor’s Purchasing Managers’ Index (PMI) report highlighted a surge in job creation, with employment rising at one of the fastest rates seen in the past decade. Increased purchasing activity and stockpiling were also noted, spurred by stronger business expectations and a modest uptick in new orders.

However, overall growth momentum slowed compared to recent trends, with non-oil sector output accelerating at its weakest pace since early 2022. To stimulate demand, businesses reduced their selling prices for the second consecutive month. While profit margins remained under pressure, the squeeze was less severe than in July, thanks to a slower rise in input costs.

Despite these challenges, the August survey indicated that non-oil firms were more optimistic about future growth, with expectations for the coming year reaching their highest level since March. Businesses expressed confidence in their sales pipelines and anticipated growth from increased investment, tourism, and population expansion.

In response to these positive outlooks, companies intensified efforts to boost capacity, particularly through increased hiring. August saw one of the fastest employment growth levels since early 2015. Many firms cited the need to expand production and enhance effciency. Purchasing activity also surged, leading to a sharp rise in inventory levels.