Saudi Arabia's non-oil economy powers ahead amid cooling inflation
Consumer activity remains robust, with spending — measured through cash withdrawals, point-of-sale transactions, and e-commerce — rising 8.8 per cent year-on-year in June. The first half of 2025 saw average annual growth in consumer spending reach 9.4 per cent, well above the inflation rate, indicating solid real gains. Private final consumption rose 4.5 per cent in the first quarter, while wholesale and retail trade, restaurants, and hotels posted an impressive 8.4 per cent growth.
The moderation in inflation has played a key role in supporting household consumption. Headline consumer price inflation (CPI) slowed to 2.1 per cent year-on-year in July, down from 2.3 per cent in June, marking the lowest annual pace since February. Prices remained flat on a monthly basis, compared to a 0.2 per cent increase the previous month. Emirates NBD forecasts average inflation for the year at 2.0 per cent, slightly higher than the 1.7 per cent recorded in 2024.
Housing and utilities — accounting for just over 20 per cent of the CPI basket — continue to be the main drivers of inflation. However, housing inflation eased to 5.6 per cent in July, down from 6.5 per cent in June, thanks to base effects and government initiatives aimed at increasing housing supply, particularly in Riyadh. This marks the slowest pace of housing inflation since December 2022.
Other CPI components showed mixed trends. Food and beverage prices rose 1.6 per cent year-on-year, slightly up from June but below the first-half average of 2.2 per cent. Prices in restaurants and hotels increased by 1.4 per cent, while recreation and culture saw a modest 0.7 per cent rise. Meanwhile, competitive pressures led to price declines in clothing and footwear (down 0.4 per cent) and household furnishings and equipment (down 2.0 per cent).
With inflation remaining modest and consumer demand resilient, Saudi Arabia's non-oil sectors are expected to maintain strong performance through the second half of the year, reinforcing the Kingdom's broader economic diversification goals.
The full report is available on the Emirates NBD Research website.
'We expect project spending to support non-oil growth in Saudi Arabia, with over $400 million worth of projects already in execution, and with over $1.5bn in the pipeline. Respondents to the Riyad Bank PMI survey for Saudi Arabia have continued to highlight new projects as supporting their businesses and the survey remained indicative of robust activity growth at 56.3 in July,' Daniel Richards, Senior Mena Economist, Emirates NBD, told Khaleej Times.
The outlook for the Saudi consumer also remains strong, with robust growth in consumer spending, and only mild inflationary pressures. Unemployment fell to just 2.8 per cent in Q1, from 3.5 per cent in Q4 2024, and the population continues to grow, up 4.7 per cent year on year in the middle of 2024, Richards added.
Oil GDP saw year-on-year growth of 3.8 per cent in Q2, a reversal of the 0.5 per cent contraction the previous quarter, as Opec+, and Saudi Arabia in particular, has begun to unwind some of the additional oil production curbs that had been in place previously. The pace by which barrels have been returned to the market has exceeded what had previously been projected by the producers' group, and while we anticipated this, the rate has exceeded even our expectations. For May and June it announced a return of 411,000 barrel to the market, around three times the previously scheduled volume, and this resulted in average Saudi oil production of 9.16 million barrels per day (bpd) in Q2, up from 8.95 million bpd in Q1 and compared with 9.0 million bpd in Q2 2024. 'Q3 will likely see even sharper oil GDP growth given that Opec+ has stepped up the pace of returning barrels to the market even more, with an additional 548,000 bpd announced for August and September. With oil production averaging 8.97 million bpd in H2 2024 according to Bloomberg estimates, the oil GDP growth rate in the second half of the year will be even stronger, and we forecast a full-year pace of 3.5 per cent,' Richards said.
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