Morgan Stanley Cuts Saudi Economic Growth Forecast to 1.8% Contraction

Morgan Stanley lowered its forecast for Saudi economic growth in 2026 to a contraction of 1.8%, after suggesting that oil supply disruptions may persist longer than expected, according to Investing.com.

The research note expected the recovery of oil exports to be delayed to the second quarter of 2027, with oil activity dropping 28% in the fourth quarter of this year, and oil output contracting 17.8% over the full year, while non-oil activity continues to grow at 3%.

It projected crude production in the fourth quarter to reach around 6.3 million barrels per day, and crude exports to range between 4 and 5 million barrels per day, with oil revenues reaching about 685 billion riyals in 2026 and rising to 740 billion riyals in 2027, and oil output returning to growth by about 23% in 2027.

This forecast downgrade comes at a time when estimates from international institutions align with those of the Saudi Ministry of Finance, which expected real GDP to contract by 3.6% in 2026 before returning to growth at 12.8% in 2027. Contraction means an actual decrease in the size of the economy after excluding the impact of prices, which matters to Arab readers because the performance of the Saudi economy determines the scale of government spending, private sector projects, and the cost of financing in the region.

What Do These Terms Mean?

Gross Domestic Product (GDP): The value of all goods and services produced by a country's economy over a specific period, representing the broadest measure of an economy's size and growth.

Oil Output: The portion of GDP that comes from oil and gas extraction and related activities, directly affected by crude prices as well as production and export volumes.

Oil Revenues: The funds collected by the state from oil sales and duties, serving as a primary source for funding the general budget in producing countries.