Saudi Arabia’s economic growth to decelerate to 3.1% in 2023

OPEC+ agreed to cut oil production until the end of 2023 to stabilse the market amidst an uncertain global economic outlook. The reduction in oil production is expected to have an impact on Saudi Arabia’s economy as the oil sector accounts for more than 45% of its GDP. Additionally, the slowdown in economic activities and subdued external demand are likely to affect the country’s trade prospects. Against this backdrop, the Saudi Arabian economy is projected to grow at a slower pace of 3.1% in 2023 as compared to a robust 8.7% growth recorded in 2022, according to GlobalData, the data and analytics company.

GlobalData’s latest report, Macroeconomic Outlook Report: Saudi Arabia, shows that although the economic growth is projected to slow down to 3.1% in 2023, it is still higher than the average growth of 2.4% recorded during 2018-22. The economic growth in 2023 is expected to be driven by growth in the non-oil sector, which is aided by the diversification efforts as part of the Vision 2030 plan. As part of the plan, the country envisages attracting mining investments of $170 billion by 2030.

Bindi Patel, Economic Research Analyst at GlobalData, comments: “The subdued economic activities in Europe and the Americas are expected to slow down Saudi Arabia’s overall exports growth to 5.9% in 2023 from 6.3% in 2022 and 47.1% in 2021. On the other hand, a benign inflation rate (2.6% in 2023 forecast vs 2020-22 average of 3%) and declining unemployment rate (6% vs 6.8%) are projected to keep the domestic demand buoyed with real household consumption expenditure projected to grow by 4.4% in 2023 as compared to 3.7% in 2022.”

In terms of sectors, mining, manufacturing, and utilities contributed 43.4% to the gross value added (GVA) in 2022, followed by financial intermediation, real estate, and business activities (11.6%) and wholesale, retail, and hotels activities (9.7%), according to GlobalData estimates. In nominal terms, the three sectors are expected to grow by 6.8%, 4.9%, and 5.1%, respectively, in 2023 as compared to 10.4%, 7.6%, and 7.9% in 2022.

According to the National Industrial Development and Logistics Program, Vision 2030 launched 60 initiatives in the logistics sector, including five new airports and 2,000 km of railways, and aims to attract more than SAR165 billion ($43.9 billion) of investments. These will significantly boost the construction activities, which GlobalData forecasts to expand by 3.2% during 2023-2025.

Saudi Arabia aims to be one of the top five global destinations for tourism and envisages increasing the contribution of its tourism sector to 10% of GDP from 6.1% in 2021 and creating one million additional jobs by 2030. According to GlobalData’s travel and tourism database, the number of international arrivals in Saudi Arabia increased from 2.4 million in 2021 to 14.5 million in 2022 and is forecast to increase to 18.6 million in 2023.

Saudi Arabia is categorised as a low-risk nation and ranked 30th out of 153 nations in GlobalData Country Risk Index (GCRI Q4 2022). The country’s risk score is lower in the parameters of macroeconomic, legal, demographic, and social structure and technology parameters when compared to the average of Middle East and North African nations.

Patel concludes: “The diversification efforts of the Saudi Arabian economy are exhibiting fruitful results as the share of the service sector in the overall gross value added increased from 40.1% in 2000 to 48.5% in 2022, whereas the industry sector contribution declined from 54.9% to 49.1% during the same period. However, the economy still significantly depends on the oil and gas sector, which makes it vulnerable to oil price shocks, and the government must continue its transformation efforts at a fast pace to make the economy resilient to external shocks.”