Saudi Arabia expects GDP contraction of 3.6% in 2026 and a rebound of 12.8% in 2027

The Saudi Ministry of Finance announced in its preliminary budget statement for the 2027 fiscal year, issued today, Wednesday, September 30, its expectations of a real gross domestic product contraction of about 3.6% in 2026, alongside a 21.8% drop in oil activities. The ministry explained that the economy will resume growth by 12.8% in 2027, in a forecast reflecting a sharp turn between two consecutive years. The statement comes prior to the official budget announcement and is usually read as an initial roadmap for the path of government spending in the coming year.

According to the statement, expected revenues in 2027 stand at around 1.202 trillion riyals, against expenditures of 1.392 trillion riyals. Consequently, the deficit decreases to 191 billion riyals, equivalent to 3.6% of GDP, compared to a deficit of 245 billion riyals or 4.9% in 2026. The deficit is measured as a percentage of GDP, which is the metric investors follow to evaluate the government's ability to borrow and cover its expenses.

The expected contraction in 2026 reflects the impact of oil production cuts and OPEC+ alliance decisions on oil activities, which represent the largest component of the Saudi economy. On the other hand, the expected rebound in 2027 indicates a return of oil activity to growth and the continued expansion of non-oil sectors that the Kingdom relies on to diversify revenue sources. A wide gap remains between the two years because the Saudi economy is still significantly linked to oil production levels and its prices in global markets.

Investors in the region follow these figures closely because they determine the volume of government spending and the pace of major projects, as well as the government's need to borrow from domestic and international markets. The level of deficit affects the cost of sovereign debt issuances, banking sector liquidity, and its ability to finance companies and individuals. A shrinking deficit means a reduced need to issue new debt, relieving pressure on local bank liquidity, which buys the largest share of government issuances.

What do these terms mean?

Preliminary budget statement: A report issued by the Ministry of Finance prior to the official budget announcement, detailing revenue, expenditure, and deficit projections for the upcoming year. Real Gross Domestic Product (Real GDP): The value of everything produced by the economy after excluding the effect of rising prices, a metric showing whether the economy is actually growing or contracting. Oil activities: The part of the economy linked to oil production and refining, directly affected by decisions to reduce or increase production.