ARAB NEWS: RIYADH: Saudi Arabia’s economy is expected to stay resilient amid geopolitical conflicts and is expected to grow by 1.7 percent this year before accelerating to 5.5 percent in 2027, according to the International Monetary Fund.

In its latest Article IV Consultation report, the IMF said that Saudi Arabia entered 2026 with strong momentum after its economy expanded by 4.6 percent in 2025, driven by the gradual unwinding of OPEC+ production cuts and robust domestic demand in the non-oil sector.

Inflation eased to below 2 percent, the labor market remained strong with low unemployment among Saudi nationals, foreign reserves stayed comfortable, and the banking sector maintained strong capital and liquidity buffers.

In June, the Organization for Economic Co-operation and Development said that the Kingdom’s economy is set to expand by 3.2 percent this year before accelerating to 4.3 percent in 2027.

In its latest report, the IMF said that while the war in the Middle East and the near halt in shipping through the Strait of Hormuz have disrupted activity, curtailed trade, including oil exports, and dented confidence, the Kingdom’s economy is “showing agility and resilience, reflecting Saudi Arabia’s strong macroeconomic fundamentals and diversified oil and logistics infrastructure.”

In an X post, Saudi Arabia’s Minister of Fiinance Mohammed Al-Jadaan welcomed the IMF findings, and said the report “affirms the Saudi economy’s resilience in the face of shocks, backed by its solid economic fundamentals and diversified infrastructure, demonstrating agility and adaptability despite ongoing rising uncertainty facing the global economy.”

According to the IMF, rerouting of oil through the East-West pipeline to Red Sea ports limited the drop in oil deliveries, while higher oil prices more than offset the volume losses and generated an oil revenue windfall. High-frequency indicators also point to early stabilization in non-oil activity in April–June after a likely contraction in March.

Saudi Arabia’s East-West Pipeline, known as Petroline, runs from Abqaiq in the oil-producing Eastern Province to the Red Sea Port of Yanbu.

This pipeline can transport a significant share of Saudi Arabia’s crude exports without transiting through the Strait of Hormuz. Cargoes loaded in Yanbu can then reach global markets by transiting north through the Suez Canal to Europe or south through the Bab El Mandab Strait to Asia.

Strength of Saudi banking sector

In its report, the IMF said that the Saudi banking sector is able to continue to support economic activity and face shocks, and that systemic risks to financial stability remain low, as the sector enjoys solid levels of capital and liquidity.

It also lauded the continued efforts of the Saudi Central Bank, also known as SAMA, to enhance financial stability and risk reduction through continuous monitoring of credit growth and asset quality.

“SAMA’s efforts to strengthen liquidity management are welcome,” said the IMF, adding: “Banks’ excess liquidity, measured by weekly net reverse repo, has risen by about 25 percent since the onset of the conflict. Nonetheless, SAMA should stand ready to provide liquidity through its standing facilities and continue to calibrate operations to keep short-term rates stable around the policy rate.” 

Economic outlook

The report revealed that Saudi Arabia’s economic growth in 2026 will continue to be supported by domestic demand, stable employment, robust government spending, and the steady execution of capital projects.

Inflation is expected to rise modestly to 2.2 percent, reflecting higher shipping and insurance costs that will be partly offset by subdued rent inflation and price caps on some fuel and food items.

Higher oil revenues are forecast to narrow both the current account and fiscal deficits this year.

Over the medium term, growth is expected to be supported by buoyant consumption and investment, including government-led projects and major international events, alongside sustained structural reforms under Vision 2030.

“The outlook hinges critically on the evolution of the conflict, with risks to the downside. Continued disruptions to shipping through the Strait could further curtail trade, weaken confidence, and weigh on growth and diversification. Other downside risks stem from global developments: weaker demand, trade tensions, tighter financial conditions, and a sustained decline in oil prices,” said IMF.

The report further said that a recovery is anticipated once maritime traffic through the Strait of Hormuz gradually returns to normal.