IMF raises Saudi growth forecast to 3.5% for 2025, outstripping global average

Arab News

4 hours ago

RIYADH: The International Monetary Fund has revised up its forecast for Saudi Arabia's economic growth in 2025, raising it to 3.5 percent from the 3 percent projected in April.
In its concluding statement following an Article IV consultation, the IMF highlighted the pivotal role of Vision 2030 mega projects in sustaining the Kingdom's economic momentum, noting its continued resilience amid lower oil prices and shifting international challenges.
The IMF projects Saudi economic growth will outpace the global average of 2.8 percent in 2025, as well as outstripping most of its Gulf peers.
'Robust domestic demand — including from government-led projects — will continue to drive growth despite heightened global uncertainty and a weakened commodity price outlook,' the IMF stated in its new report.
The fund expected this momentum, supported by the scheduled phase-out of OPEC+ production cuts, to push growth even higher to 3.9 percent in 2026 before stabilizing around 3.3 percent in the medium term.
The Saudi Ministry of Finance welcomed the IMF's concluding statement, highlighting its confirmation of 'the strong resilience of the Saudi economy in the face of global economic shocks, supported by the expansion of non-oil sector activities, containment of inflation, and a historically low unemployment rate — all aligning with the objectives of Saudi Vision 2030.'
The ministry noted the IMF's praise for the government's efforts to enhance public finance sustainability and resilience to shocks, as well as its recognition that strong domestic demand continues to support economic growth despite global uncertainty, reflecting the Kingdom's continued implementation of Vision 2030 projects.
Non-oil gross domestic product growth, a key indicator of diversification success, is projected to grow at 3.4 percent in 2025.
While slightly lower than the 4.2 percent achieved in 2024, the IMF attributed this sustained performance to 'continued implementation of Vision 2030 projects through public and private investment, as well as strong credit growth, which would help sustain domestic demand and mitigate the impact of lower oil prices.'
Medium-term non-oil growth is expected to approach 4 percent by 2027 before stabilizing at 3.5 percent by 2030.
The IMF also noted positive developments in the labor market and inflation. The unemployment rate for Saudi nationals fell to a record low of 7 percent in 2024, surpassing the original Vision 2030 target.
Headline inflation, despite a small rise to 2.3 percent in April, remains contained.
'Inflation would remain anchored around 2 percent, supported by a credible peg to the US dollar, domestic subsidies, and an elastic supply of expatriate labor,' the fund projected.
On fiscal policy, the IMF deemed the anticipated higher spending in 2025, leading to a deficit above budget targets, as 'appropriate.'
'Given the upfront adjustment and ample fiscal buffers available, staff believes that additional spending restraint in 2025— triggered by lower-than-budgeted oil prices— is not necessary as it would make fiscal policy procyclical and exacerbate the impact on growth,' the statement added.
However, it emphasized the need for gradual fiscal consolidation over the medium term, recommending measures like non-oil revenue mobilization, removing energy subsidies, and rationalizing spending.
The IMF highlighted the banking sector's resilience but cautioned about the risks associated with strong credit growth. 'Addressing strong credit growth and associated funding pressures would help mitigate risks to systemic financial stability,' the report urged.
It welcomed the Saudi Central Bank's recent introduction of a countercyclical capital buffer and ongoing efforts to enhance regulatory frameworks.
The fund strongly emphasized the need for continued structural reforms. 'The current environment of heightened uncertainty underscores the importance of continued structural reform efforts to sustain non-oil growth and economic diversification,' the statement concluded.
It added: 'The reform momentum should continue irrespective of oil price developments.'
This includes strengthening anti-corruption frameworks, enhancing human capital, improving access to finance, fostering digitalization, and deepening capital markets.