Saudi Arabia raised its economic growth estimate for the first quarter, driven by expansion in the non-oil sector.
The General Authority for Statistics (Gastat) said on Monday that real GDP grew by 3.4 percent in the three months to March 31, compared with the same period last year. That also compared with its earlier estimate of 2.7 percent.
Non-oil activities expanded by almost 5 percent, it said.
“The critical story really remains on signs of strong ongoing non-oil GDP momentum underpinned by the investment programme,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
Government activities grew by 3.2 percent, despite a 0.5 percent decline in oil-related activities, according to the bulletin.
Oil prices have declined this year, accelerated by heightened international trade tensions at the start of April. Brent crude, which averaged $81 per barrel last year, is now trading below $65. JP Morgan has forecast it to drop to $58 next year.
Saudi Arabia is the world’s largest oil exporter and counts on the fuel for about 60 percent of its government revenue.
“Q1 was still in a sweet spot where the oil price was more supportive,” Malik said. “But from Q2 onwards, the challenges increase and government spending will be critical.”
The kingdom is overseeing billions of dollars in infrastructure projects as part of its effort to diversify its economy away from oil.
While the government and state companies like Saudi Aramco have signalled their intention to borrow to support spending, a fall in oil revenues is likely to impact investment plans and associated economic growth.
“We do expect to see some deceleration in growth in the coming quarters with the need to tighten fiscal policy, given the weaker oil price,” Malik said.
Of the sectors analysed by Gastat, wholesale and retail trade and restaurants and hotels grew the most, at 8.4 percent. This was followed by transport, storage and communications (6 percent) and finance, insurance and business services (5.5 percent).
Saudi businesses in the non-oil sector saw sustained activity in May, according to S&P Global’s latest monthly Purchasing Managers’ Index.
“New orders led the expansion this month, which saw a notable acceleration after dipping in April,” said Naif Al-Ghaith, chief economist at Riyad Bank.
“Looking ahead, sentiment among non-oil firms has strengthened visibly,” he said.
“Business expectations looking forward reached their highest level since late 2023. Hiring momentum remained strong as companies expanded teams to support output growth, particularly in operations and sales.”-
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