Saudi Arabia

Dual growth engines in 2026 for oil and non-oil sectors

In 2026, Saudi Arabia’s economic outlook is expected to improve moderately, although at a slightly slower pace than previously anticipated due to heightened regional geopolitical tensions following the war involving Iran. Economic growth is expected to be driven by a combination of recovering hydrocarbon production, non-oil activity (55% of GDP) and sustained public investment and ongoing progress under Vision 2030. On the oil side, the gradual easing of OPEC+ constraints and Saudi Arabia’s substantial space capacity should support higher output. The authorities aim to preserve their market share while meeting rising domestic demand. At the same time, ongoing upstream investments by Aramco are strengthening production capacity, including for natural gas. As a result, after rising by 5.5% in 2025, Saudi oil production is expected to grow by around 6% in 2026. Meanwhile, non-oil sectors, particularly construction, tourism, logistics and entertainment are likely to remain key growth engines, benefiting from large infrastructure projects and government-led investment. However, heightened uncertainty and security concerns in the region may weigh somewhat on investor sentiment and trade flows.

Inflation is projected to remain relatively contained, although slightly higher than previously estimated amid rising regional tensions and disruptions to key trade routes. Energy and utility prices are supported by subsidy schemes, while housing costs are moderated through large-scale public housing programs, supply-side measures and other initiatives such as a rent-freeze in Riyadh. However, strong domestic demand together with higher logistics and import costs partly linked to heightened insecurity in regional shipping corridors, may generate upward pressure on prices over the year. Monetary policy will continue to be guided by the US Fed’s moves in line with the exchange-rate peg to the US dollar. If higher oil prices driven by the regional conflicts delay monetary easing by the US Federal Reserve, Saudi Arabia’s central bank would have limited room to lower its policy rate due to the currency peg regime. This could keep financing costs elevated for firms, potentially weighing on investment and narrowing corporate profit margins.

Fiscal position under moderate pressure, current account deficit widens

The fiscal position is expected to remain under pressure in 2026, reflecting continued investment spending under Vision 2030 and relatively cautious revenue assumptions. Despite higher oil output and resilient non-oil revenues, budget balances are likely to remain in deficit, mainly due to sustained infrastructure spending and rising current expenditures. While higher oil prices could support fiscal revenues, elevated regional tensions may also increase volatility in energy markets and create risks for oil trade flows, limiting government energy revenues. Operating expenditures remain elevated, although some moderation in capital spending is expected as major projects progress towards completion.

The Kingdom’s external position is expected to remain in moderate deficit in 2026, reflecting declining oil revenues relative to GDP and strong import demand linked to large-scale-investment projects. While oil export receipts (around 70% of total export revenues) are projected to increase moderately in nominal terms, their contribution to overall export earnings and economic output is expected to continue to weaken. Non-oil exports are expected to grow further, supported by expanding manufacturing capacity, higher re-exports and improved logistics infrastructure. However, their share remains insufficient to offset the structural decline in hydrocarbon export dominance. At the same time, imports are likely to remain elevated, led by capital goods purchases and rising consumer demand associated with economic diversification. The current disruption to shipping through the Strait of Hormuz may create risks for oil and petrochemicals trade flows and increase transportation and insurance costs, potentially constraining export revenues, despite higher energy prices.

Persistent regional risks and security challenges

The outbreak of war involving Iran has significantly increased geopolitical uncertainty in the region and raises the risk of a broader, deeper and more prolonged period of regional instability. The security situation along the southern border with Yemen remains fragile despite recent de-escalation efforts. Although cross-border attacks have declined significantly, the risk of renewed incidents cannot be fully ruled out. Heightened insecurity in the Red Sea and surrounding maritime corridors remains a potential risk, particularly in the event of renewed regional escalation. Saudi Arabia’s strategic partnership with Western countries, particularly with the US, remains a key pillar of its security framework. The current regional conflict also reinforces the importance of this partnership in maintaining regional stability and safeguarding key energy trade routes.

Last updated: March 2026