Riyad Capital: Saudi economy seen growing 0.9% in 2026, 6.8% in 2027

Riyad Capital expects Saudi Arabia's economic growth to slow to 0.9% in 2026 before accelerating to 6.8% in 2027 under a base-case scenario that assumes the gradual reopening of the Strait of Hormuz at the start of Q3 2026 and a return of oil production to pre-tensions levels by September.

In a report, the brokerage said Saudi crude oil production capacity is expected to rise to 10.45 million barrels per day (bpd) by the end of 2026, reversing the voluntary production cuts announced in May 2023, with output projected to remain at that level throughout 2027.

Based on that scenario, average crude production is forecast at 9.12 million bpd in 2026 and 10.45 million bpd in 2027.

Riyad Capital said the non-oil sector has been indirectly affected by regional tensions through supply chain disruptions, weaker trade flows, and lower tourism activity.

However, it noted that the sector has demonstrated considerable resilience in recent years, suggesting the current slowdown is likely to be temporary, particularly as the government's expansionary fiscal policy in 2026 provides additional support.

The firm forecasts non-oil sector growth of 3% in 2026 and 4.7% in 2027. It added that the sharp increase in oil revenues expected in 2026 would give the Saudi government greater fiscal flexibility.

To support the economy, Riyad Capital expects the government to adopt an expansionary fiscal stance, with total spending rising about 8% from last year's level. It also expects measures aimed at improving spending efficiency and strengthening fiscal discipline to be implemented next year.

The fiscal deficit is forecast to narrow to 4.4% of gross domestic product in 2026 and to shrink further to 3.5% in 2027.

The report projected inflation to rise moderately to 2.1% in 2026, assuming the impact of regional tensions remains contained, before easing slightly to 2.0% in 2027.

On monetary policy, Riyad Capital expects the US Federal Reserve to keep interest rates unchanged throughout 2026 due to elevated inflation, before delivering two rate cuts totaling 50 basis points in 2027.

Under this scenario, the three-month Saudi interbank offered rate (SAIBOR) is expected to stand at 4.75% at the end of 2026 before declining to 4.25% by the end of 2027.

According to Argaam data, the General Authority for Statistics (GASTAT) said on June 9 that Saudi Arabia's real gross domestic product grew 3% year-on-year in the first quarter of 2026.