Saudi Arabia set to be world’s fastest-growing major economy

• Saudi Arabia will be the world’s fastest-growing major economy in 2022, outperforming the dynamic Asian giants of China, India, Indonesia and South Korea, as well as the struggling G7 and other major emerging economies.

• The kingdom has recovered quickly from a pandemic-induced recession in 2020 and is reaping the rewards of high global energy prices and increased energy production. Economic fundamentals are moving in the right direction with the budget balance returning to positive territory and public debt shrinking in 2022, while consumer price inflation is contained.

• Beyond 2022, economic growth is expected to remain supported by pro-business reforms, which will help to facilitate higher levels of domestic and foreign private investment into the energy and non-energy sectors.

Saudi Arabia will be the fastest growing of the world’s largest economies in 2022. The kingdom will outpace the dynamic Asian giants of China, India, Indonesia, South Korea and Taiwan, grow much faster than the struggling major economies in western Europe and North America, and leave other large emerging economies in its wake. Real GDP growth is expected to reach 7.5% in 2022, which would be the kingdom’s fastest rate of growth since 2011 and place it at the top of the economic growth chart for the world’s 20 largest economies (measured in US dollars at purchasing power parity). Saudi Arabian real GDP growth will be close to a solid 5% in 2023 before slipping back to reasonably strong growth of about 3% in 2024‑26.

Fundamentals moving in the right direction

Economic performance is being boosted by high energy prices and rising oil and gas production, large-scale investment in the energy and non-energy sectors, and the successful rollout of an extensive covid‑19 vaccination programme. The fiscal balance will return to positive territory in 2022 supported by an energy sector windfall and buoyant non-energy business activity, while the public debt stock—which has been on a rising trend for much of the past decade—will shrink in absolute terms and relative to GDP. Unsurprisingly, the current-account balance will post an enormous surplus of about US$163bn (up from US$44bn in 2021), which will contribute to the rebuilding of ample reserve buffers, with international reserves of US$475bn almost back to pre-pandemic levels.

Inflation under wraps

Expensive imported commodities will add to price pressures, but consumer price inflation will remain contained by price caps and subsidies, and as the Saudi Central Bank tightens monetary policy in line with the Federal Reserve (the US central bank) to help to protect the exchange-rate peg to the US dollar. Consumer price inflation is expected to average about 2.5% in 2022 (and even less in 2023), which together with China and Japan will be the lowest annual average rate recorded among the world’s 20 largest economies. Moreover, any increase in domestic interest rates will have a limited impact on the overall performance of the Saudi economy given a prolonged period of high oil and gas prices and strong liquidity in the financial and business sector facilitated by the recycling of energy revenue and inflows of foreign investment.

Positive medium-term economic prospects

Saudi Arabia has implemented a wide range of reforms to help to improve the business environment, attract foreign investment and boost private-sector participation in driving the economy and supporting the labour market. Pro-business reforms have made it easier to start a business and easier for foreign companies to invest in the economy, both of which are fundamental to the kingdom’s long-term development plans under the Vision 2030 strategy. Business infrastructure and facilities will continue to improve because of large-scale public and private investment that bodes well for a wide range of sectors, including tourism and hospitality, transport and logistics, energy and derivatives, industrial production and manufacturing, and a range of consumer and business services. Saudi Arabia’s economic outlook appears promising, especially if the reform process can remain on track and finance continues to flow into the kingdom’s strategic projects and growth sectors.

The analysis and forecasts featured in this piece can be found in EIU Viewpoint, our new country analysis solution. EIU Viewpoint provides unmatched global insights covering the political and economic outlook for nearly 200 countries, helping organisations identify prospective opportunities and potential risks.