Saudi Arabia: The International Monetary Fund has raised its 2025 economic growth forecast for Saudi Arabia to 3.6 percent, up from the 3 percent projected in April, citing stronger non-oil sector performance and the expected unwinding of OPEC+ production cuts.

In its latest World Economic Outlook update, the IMF said the revision reflects a stronger-than-anticipated expansion of the non-oil economy. The Kingdom’s growth is now set to outpace the global average of 3 percent next year and surpass that of most neighboring Gulf states.

Looking ahead, the IMF expects Saudi Arabia’s growth to rise further to 3.9 percent in 2026 before stabilizing around 3.5 percent over the medium term.

Non-oil gross domestic product is projected to grow 3.4 percent in 2025, slightly below the 4.2 percent recorded in 2024. However, medium-term prospects remain strong, with non-oil growth forecast to approach 4 percent by 2027 before settling at 3.5 percent by the end of the decade.

Labor market conditions have also improved, with the unemployment rate among Saudi nationals falling to a record low of 7 percent in 2024, the IMF noted.

Inflation remains contained, with the headline rate expected to stay near 2 percent, supported by the Kingdom’s dollar peg and subsidy framework.

On fiscal policy, the IMF said higher government spending in 2025 — resulting in a deficit above the initial budget — was justified and that additional spending cuts in response to lower oil prices could be counterproductive. Such cuts would risk making fiscal policy procyclical and weighing on growth, the report stated.

The IMF also called for a gradual fiscal consolidation over the medium term. It recommended raising non-oil revenues, phasing out energy subsidies, and streamlining public expenditure.

Despite facing some pressures from strong credit growth and funding costs, the Saudi banking sector remains resilient, the IMF said. The Saudi Central Bank has introduced a countercyclical capital buffer and is continuing to strengthen regulatory frameworks.

The report emphasized the importance of sustaining structural reforms to support non-oil growth and economic diversification. It urged continued progress on governance, human capital development, financial access, digitalization, and capital market deepening — regardless of oil price trends.