Windfall in oil prices and sector growth blow up Saudi economy

The Saudi economy is booming according to the latest Economic Insight report, commissioned by ICAEW, for the Middle East

ICAEW Economic Advisor Scott Livermore says with the oil price windfall, Saudi continues to attract new investment into the economy (Image source: ICAEW)

Windfall from rising oil prices combined with growth in other sectors is expected to see the economy grow by 7.6% this year, the fastest rate since 2011. This positive outlook means that the Kingdom’s economy is on track to surpass the $1 trillion GDP mark for the first time.

ICAEW Managing Director, International, Mark Billington, said: “While the surge in oil prices and production has contributed greatly to the Saudi economy, the outlook for non-oil growth indicates that plans to diversify ambitions of the Kingdom are on the right track. Expectations that Saudi Arabia will enter the club of trillion-dollar economies this year show great progress towards achieving its Vision 2030 target of US$1.7 trillion.

According to the third quarter report, Saudi Arabia’s outlook is supported by a 23.1% increase in oil activities and triple-digit growth in oil exports. This saw the Kingdom post its strongest growth in more than a decade in the second quarter at 12.2%. Saudi oil production increased by nearly 11 million bpd as the OPEC alliance eased production limits. It is expected to average 10.6 million bpd this year, up from 9.1 million bpd in 2021.

Rising oil revenues are also benefiting the non-oil economy, which recorded 8.2% growth in business in the second quarter. The latest manufacturing PMI reached 57.7 in August, showing steady improvement in customer numbers, production and purchases as demand strengthens despite inflation. Point-of-sale transactions and credit to the private sector are showing double-digit growth, and imports are also indicative of the strength of the Kingdom’s domestic economy which continues to demand goods.

The ICAEW sees Saudi Arabia’s non-oil sector growing 5.1% this year, which will further propel the national employment rate after hitting a high of 89.9% in the first quarter.

While oil prices will remain at levels supportive of Saudi public finances, the report says the Kingdom’s budget surplus will peak this year at 9% of GDP, before narrowing as oil prices decline. After numerous budget deficits since 2014, the Saudi government benefited from Saudi Aramco’s record quarterly profits in the second quarter of 2022, which contributed to a large budget surplus. However, Saudi Arabia stuck to its 2022 spending plan and used the windfall from rising oil prices to replenish its reserves and build the investment fund.

ICAEW Economic Adviser and Chief Economist and Managing Director of Oxford Economics Middle East, Scott Livermore, said: “Saudi Arabia’s burgeoning trade surplus comes at a time when it is rapidly diversifying from oil revenues to domestic growth. By using windfall oil revenues to build the Public Investment Fund, the Kingdom continues to attract new investment into the economy, despite global headwinds. In recent months, the Saudi crown prince has hammered out a series of energy, military, security, economic and trade deals in meetings with officials from Kazakhstan, Greece, France and others. These agreements will help stimulate the expansion of the Kingdom’s non-oil private sector and stimulate the local labor market.


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