The World Bank announced in its latest report that the Saudi economy is expected to achieve significant growth this year, surpassing other Gulf Cooperation Council (GCC) countries. The budget deficit is projected to decrease to 3% of GDP by 2026, down from 6% last year.
Despite the challenges stemming from the ongoing war in Iran, which has entered its second month, the kingdom has managed to maintain stable economic growth. The World Bank has revised its growth estimate for the Saudi economy this year to 3.1%, down from 4.2%.
Details of the Situation
Global oil markets are experiencing sharp fluctuations due to the war, increasing pressure on the global economy. However, the recently announced ceasefire agreement between the United States and Iran has provided some hope for the markets. Nonetheless, shipping traffic in the Strait of Hormuz remains nearly halted, with reports indicating that only three vessels passed through on Wednesday.
Although a decline in the growth rate of the Saudi economy is anticipated, it remains the highest among Gulf countries, thanks to stability in non-oil sectors and the ability to redirect exports away from the Strait of Hormuz, as noted in the World Bank report.
Background & Context
The Kingdom of Saudi Arabia is the largest economy in the Arab world, with a robust infrastructure that enables it to redirect a significant portion of its oil exports to the Yanbu port on the Red Sea via the East-West pipeline. Following the closure of the Strait of Hormuz, transportation through this pipeline, which has a capacity of about 7 million barrels per day, has accelerated, helping the kingdom deliver millions of barrels to global markets.
This alternative route is one of the main reasons that prevented oil prices from reaching crisis levels seen during previous supply shocks, reflecting Saudi Arabia's ability to adapt to changing conditions.
Impact & Consequences
At the same time, the World Bank has lowered its growth forecast for the UAE economy to 2.4% from 5.1%, while predicting contractions in the Kuwaiti and Qatari economies of 6.4% and 5.7%, respectively, due to reliance on the Strait of Hormuz for energy exports and damage to liquefied natural gas facilities in Qatar from Iranian attacks.
The World Bank did not specify the exact reasons behind the expected decline in the Saudi budget deficit, but it indicated that countries like Qatar, Saudi Arabia, and the UAE have sufficient financial capacity to absorb temporary pressures and recover quickly from short-term conflicts.
Regional Significance
Analysts expect Saudi Arabia to see an increase in government revenues supported by rising oil prices and its ability to boost production and exports in the second half of the year. The World Bank also anticipates that the kingdom will achieve a surplus in its current account this year of about 3.3% of GDP, compared to a deficit of 2.7% last year.
These forecasts are a positive indicator of the Saudi economy's ability to face challenges, reinforcing its position as an economic power in the region.