Evelyn Reynolds

Saudi real GDP is expected to grow 0.8% this year, in a dramatic drop from a previous estimate of 4.4%, according to the latest pre-budget report published by the Ministry of Finance on Monday.
Saudi authorities also expect that the budget will remain in deficit for the next several years, as the kingdom prioritizes spending to achieve the targets of the Vision 2030 economic diversification program.
Saudi Arabia’s fiscal breakeven oil price has increased and may continue to rise, as oil prices are expected to stay subdued.

Riyadh, Saudi Arabia.
Xavierarnau | E+ | Getty Images

Saudi Arabia cut its growth forecasts and raised its budget deficit estimates for the fiscal years 2024 to 2026, looking ahead to a period of higher spending and lower projected oil revenues.
Real gross domestic product is now expected to grow 0.8% this year, a dramatic drop from a previous estimate of 4.4%, according to the latest pre-budget report published by the Ministry of Finance on Monday. The GDP growth projection for 2025 has also been cut from a previous estimate of 5.7% to 4.6%; while the outlook for 2026 has been trimmed from 5.1% to 3.5%.

“The FY2025 budget highlights the Kingdom’s commitment to accelerate the regulatory and structural reforms, as well as the development of policies,” the pre-budget report read. “It also focuses on transformative spending to promote sustainable economic growth, improve social development, and enhance quality of life.”
The latest report further emphasized the Saudi government’s plans to deploy sovereign and development funds “for capital investment while empowering both the private and non-profit sectors to foster growth and prosperity.”
Saudi authorities also expect that the budget will remain in deficit for the next several years, as the kingdom prioritizes spending to achieve the targets of its Vision 2030 plan to modernize and diversify the heavily oil-dependent Saudi economy.
The Finance Ministry projected a wider budget shortfall of about 2.9% of GDP for 2024, compared with a previous projection of 1.9% for the year. It predicted deficits of 2.3% and 2.9% in 2025 and 2026, respectively, also wider than previous estimates.

Saudi Arabia’s fiscal breakeven oil price — what it needs a barrel of crude to cost in order to balance its government budget — has increased in recent months and years and may well rise higher along with spending increases.

The IMF’s latest forecast released in April put that fiscal breakeven figure at $96.20 for 2024, marking a roughly 19% increase on the year before. The figure is also about 36% higher than the current price of a barrel of Brent crude, which was trading at around $70.70 as of Tuesday afternoon.
Oil prices are expected to remain subdued at least in the medium-term amid slowing demand and increased supply globally.
Saudi Arabia is hosting major international events that will require steep spending — like the World Cup 2034 and Expo 2030 — as well as building out multi-trillion dollar megaprojects like Neom, which is backed by the kingdom’s mammoth sovereign wealth fund, the Public Investment Fund.

“Saudi Arabia’s GDP dances to the rhythm of oil, and with recent data from the Ministry of Finance, it’s clear that as oil gushes, so does the economy,” Tarik Solomon, chairman emeritus at the American Chamber of Commerce in Saudi Arabia, told CNBC. “But when the wells slow, so does the growth.”
Saudi Arabia’s public debt has grown from around 3% of its GDP in the 2010s to roughly 28% today, according to the International Monetary Fund — a huge jump, but still low by international standards. Public debt in EU countries, for instance, averages 82%. In the U.S. in 2023, that figure was 123%.
Its relatively low debt level and high credit rating makes it easier for Saudi Arabia to take on more debt as it needs to. The kingdom has also rolled out a series of reforms to boost and de-risk foreign investment and diversify revenue streams. While the country’s economy has contracted for the last consecutive four quarters, non-oil economic activity grew 4.4% in the second quarter year-on-year, up 3.4% in the previous quarter. More

Fed Chair Jerome Powell said Monday that the recent half percentage point interest rate cut shouldn’t be interpreted as a sign that future moves will be as aggressive.
“We are not on any preset course,” he told the National Association for Business Economics.
Powell expressed confidence in economic strength and sees inflation continuing to cool.

Federal Reserve Chair Jerome Powell said Monday that the recent half percentage point interest rate cut shouldn’t be interpreted as a sign that future moves will be as aggressive, in fact indicating the next moves will be smaller.
The central bank chief asserted during a speech in Nashville, Tennessee, that he and his colleagues will seek to balance bringing down inflation with supporting the labor market and let the data guide future moves.

“Looking forward, if the economy evolves broadly as expected, policy will move over time toward a more neutral stance. But we are not on any preset course,” he told the National Association for Business Economics in prepared remarks. “The risks are two-sided, and we will continue to make our decisions meeting by meeting.”
Powell did indicate that if the economic data remains consistent, there are likely two more rate cuts coming this year but in smaller, quarter percentage point, increments. That stands in contrast with market expectations for more aggressive easing.
“This is not a committee that feels like it’s in a hurry to cut rates quickly,” he said during a Q&A period following his speech with Morgan Stanley economist Ellen Zentner. “If the economy performs as expected, that would mean two more rate cuts this year, a total of 50 [basis points] more.”
Stocks fell as Powell spoke, with the Dow Jones Industrial Average off more than 150 points. Treasury yields moved higher, with the benchmark 10-year Treasury note most recently yielding close to 3.8%, up nearly 5 basis points on the session.
The remarks come less than two weeks after the rate-setting Federal Open Market Committee approved the half percentage point, or 50 basis points, reduction in the Fed’s key overnight borrowing rate. A basis point equals 0.01%.

Though markets had been largely expecting the action, it was unusual in that the Fed historically has only moved in such large increments during events such as the Covid pandemic in 2020 and the global financial crisis in 2008.
The likelihood of another 50 basis points in cuts would be consistent with estimates provided in the FOMC’s “dot plot” indicating individual officials’ assessments of where rates are headed.
Addressing the decision at the Sept. 17-18 meeting, Powell said it reflected policymakers’ belief that it was time for a “recalibration” of policy that better reflected current conditions. Beginning in March 2022, the Fed began fighting surging inflation; policymakers of late have shifted their attention to a labor market that Powell characterized as “solid” though it has “clearly cooled over the last year.”
“That decision reflects our growing confidence that, with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in an environment of moderate economic growth and inflation moving sustainably down to our objective,” Powell said.
“We do not believe that we need to see further cooling in labor market conditions to achieve 2 percent inflation,” Powell added.
Futures market pricing is indicating that the Fed is more likely to move cautiously at its Nov. 6-7 meeting and approve a quarter-point reduction. However, traders see the December move as a more aggressive half-point cut.
For his part, Powell expressed confidence in economic strength and sees inflation continuing to cool.
Inflation during August was around 2.2% annually, according to the Fed’s preferred personal consumption expenditures price index released Friday. While that is close to the central bank’s 2% goal, core inflation, which excludes gas and groceries, was still running at a 2.7% pace. Policymakers usually consider core inflation as a better guide for longer-run trends being that food and energy prices are more volatile than many other items.
Perhaps the most stubborn area of inflation has been housing-related costs, which rose another 0.5% in August. However, Powell said he believes the data eventually will catch up with easing prices for rent renewals.
“Housing services inflation continues to decline, but sluggishly,” he said. “The growth rate in rents charged to new tenants remains low. As long as that remains the case, housing services inflation will continue to decline. Broader economic conditions also set the table for further disinflation.”

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