The non-oil sector will be Saudi Arabia’s growth engine

The World Bank expects the Gulf Cooperation Council (GCC) region to grow by 2.8% in 2024 and 4.7% in 2025. This growth is driven by OPEC+ gradually increasing oil production from mid-2024 and strong non-oil economic activity.

Saudi Arabia’s economy is expected to grow 2.5% this year thanks to its booming non-oil private sector. The non-oil sector is expected to grow by 4.8% in 2024, while the oil sector will contract by 0.8%.

These forecasts highlight the GCC’s shift towards diversifying its economies beyond oil.

The World Bank has updated its growth forecast for the GCC region. It now expects a lower growth rate this year of 2.8%, down from its previous estimate of 3.6%.

However, growth prospects for next year have increased to 4.7%, compared with the previous projection of 3.7%.

Safaa El-Kogali, World Bank Country Director for the GCC, told Asharq Al-Awsat that the region’s economic performance fell to 0.7% in 2023 due to OPEC+ cuts in oil production, despite strong growth in 2022.

On the other hand, non-oil sectors grew by 3.9% thanks to ongoing reforms and diversification efforts.

El-Kogali is optimistic about the future, forecasting GDP growth of 2.8% in 2024 and 4.7% in 2025. This positive outlook is due to the expected gradual increase in oil production and the continued good performance of the non-oil sectors.

Moreover, the World Bank projected that GCC non-oil GDP will grow by 3.6% this year and 3.5% over the medium term, supported by expansionary fiscal policy, low interest rates and strong private consumption and investment.

Oil GDP is expected to grow by 1.7% in 2024 and increase to 6.9% in 2025 as oil production quotas are gradually increased.

Oil and gas revenues will remain critical to the region’s fiscal policy and external balance. The GCC budget surplus is expected to narrow to 0.1% of GDP in 2024 and the current account surplus is expected to be 7.5% of GDP, down from 8.4% in 2022.

El-Kogali warned of significant uncertainty and risks.

“The outlook is clouded by uncertainty and downside risks,” she said.

“The conflict in the Middle East poses serious risks, especially if it escalates or involves other regional actors,” El-Kogali added.

“While such tensions could drive up oil prices, bringing unexpected benefits to the GCC, they could also destabilize financial and trade markets and undermine economic confidence,” she explained.

El-Kogali also noted risks such as slower growth in China, prolonged high interest rates and difficult climate conditions, all of which could have a negative impact on the region.

Assessing Saudi Arabia’s efforts towards economic diversification, El-Kogali said: “Saudi Arabia has already taken significant steps towards realizing its economic potential and diversifying by becoming independent from oil.”

“Structural reforms have been implemented over the past two years, demonstrating the Kingdom’s commitment to reform,” she said.

“Economic diversification is at the heart of Vision 2030 and all efforts are aimed at achieving this national goal. We see Saudi Arabia making significant progress in diversifying the real economy and increasing the contribution of non-oil sectors to GDP.”

“There is an improvement in the diversification of public finance revenues, with non-oil revenues increasing from 3.5% of GDP in 2011 to 12% in 2023.”

“However, there remains room for further focus and improved diversification of Saudi export baskets, as non-oil exports remain modest at less than 10% of GDP,” El-Kogali noted.