According to Al Rajhi Capital, a surge in crude prices has helped offset the impact of a sharp hit to oil production from regional conflict in the Saudi Arabian economy, which showed signs of resilience.
Saudi crude output fell 23% month-on-month to 7.76 million barrels per day in March, reflecting disruptions linked to heightened geopolitical tensions, although the decline in volumes was partly cushioned by a sharp rally in oil prices, with Brent crude surging more than 63% the same period, boosting revenue dynamics despite lower production.
Business activity was weighed down by supply chain disruptions and uncertainty caused by the US-Iran war, which pushed the kingdom’s Purchasing Managers’ Index into contraction at 48.8 in March, putting near-term pressure on the non-oil private sector, although underlying economic fundamentals are relatively robust.
Real GDP grew 5.0% in the fourth quarter of 2025, led by solid expansion in both the oil and non-oil sectors, and inflation remained contained at 1.8% year-on-year in March, while consumer activity also held up, with total spending increasing 8.4% year-on-year, backed by growth in e-commerce, even if traditional retail segments expanded more modestly.
The outlook is positive, however, with the International Monetary Fund projecting growth of 3.1% for 2026, even as external risks persist. Inflation has remained low, with consumer prices increasing just 1.8% year-on-year in March, while global commodity shocks have largely spared domestic price stability. Consumer activity was also mixed, with overall spending up 8.4% year-on-year, boosted by a surge in e-commerce transactions, but with growth at the point-of-sale remaining modest.
However, fiscal pressures are starting to emerge with 8.6% lower year-on-year total government revenue in the fourth quarter of 2025 due to weaker oil income and 3.1% higher spending, which has widened the fiscal gap. The real estate sector has slowed significantly as well, with commercial transaction volumes down 68% year-on-year and residential transactions down 66%, reflecting tighter financial conditions and investor caution. However, labour market conditions are steady, with Saudi unemployment declining to 7.2%, reflecting a substantial decline in female unemployment.