Saudi Growth Rebounds in Third Quarter, But Uncertainty Remains High

The preliminary or “flash” estimate of gross domestic product for the third quarter of 2026 shows that the Saudi economy returned to growth after contracting in the first two quarters of the year. Real GDP grew by 1.3% relative to the second quarter (although it still contracted by 3.8% compared to the third quarter of 2025). The growth rebound was driven by a recovery in oil production. Real oil GDP grew by 5.7% quarter on quarter compared to a 21.6% contraction in the second quarter. Real non-oil GDP grew by 0.2% quarter on quarter, following a 0.3% contraction in the second quarter. Non-oil growth remains well below the levels seen before the Iran conflict. The modest recovery in non-oil growth in the third quarter is consistent with the uptick in business confidence shown in the Riyadh Bank purchasing managers’ index.

Sources: General Authority for Statistics; Riyadh Bank
Note: Non-oil real GDP growth is quarter on quarter.

Looking forward, reports from companies that track oil tanker movements suggest that Saudi oil exports remained around September levels in October despite an increase in Iranian attacks on shipping. If this level of exports is maintained in the final two months of the year, real oil GDP would likely contract by 16% in 2026 relative to 2025.

In the non-oil sector, growth should be modestly positive in the fourth quarter and around 1.3% for 2026 as a whole. While the purchasing managers’ index dipped slightly in October compared to September, it remained around its average third quarter level. Other monthly indicators, such as non-oil trade and bank credit to the private sector, also suggest that non-oil growth has stabilized at a subdued level, although the Saudi stock market has continued to weaken over the past month. Based on these oil and non-oil forecasts, overall real GDP would contract by about 4.5% in 2026.

Uncertainty Remains the Name of the Game

Saudi oil exports and production have been resilient over the past two months despite continued threats to shipping around the Strait of Hormuz and the Bab el-Mandeb and the attacks on the East-West oil pipeline. Business confidence has also held up relatively well despite the escalation of Houthi attacks on the kingdom.

Nevertheless, uncertainties remain. Chief among these are the prospects for the U.S.-Israeli war with Iran and the conflict between Saudi Arabia and the Houthis. A negotiated end to the conflict that provides a credible guarantee against future attacks on the kingdom would create the environment for a strong rebound in growth, as envisaged by the International Monetary Fund, which projects nearly 8% growth in the Saudi economy in 2027. However, if the conflicts escalate and result in increased attacks on the kingdom’s infrastructure and oil industry, growth during the final months of this year and into 2027 would be markedly weaker. This is because oil exports would be negatively affected and travel to, and investment in, the kingdom curtailed, at least temporarily. A number of high-profile events, including the Future Investment Initiative and the Asian Cup soccer tournament, have already been postponed, and a deepening of hostilities would inevitably result in further delays and cancellations.

The views represented herein are the author's or speaker's own and do not necessarily reflect the views of AGSI, its staff, or its board of directors.