Key facts
- Saudi Arabia's non-oil private sector expanded at its fastest pace in three months in May.
- Domestic demand improved and supply chains stabilized in Saudi Arabia.
- Businesses in Riyadh are reportedly operating as usual, contrasting with other Gulf economies affected by regional conflicts.
- Saudi Arabia benefits from a strong consumer base and rerouted logistics bypassing the Strait of Hormuz.
- The IMF forecasts 3.1% growth for Saudi Arabia this year.
Saudi Arabia is attracting business and demonstrating resilience amid regional conflict, contrasting with other Gulf economies. Food-tech entrepreneur Sara Amini reported business as usual in Riyadh, with full restaurants and companies discussing expansion, unlike in other Gulf nations affected by the Iran war. While Saudi Arabia's economy contracted 1.5% in the first quarter due to declining oil activity, its strong domestic consumer base and rerouted logistics bypassing the Strait of Hormuz are key factors. The non-oil private sector expanded at its fastest pace in three months in May, driven by improved domestic demand and stabilizing supply chains, though overall business optimism remains subdued due to the conflict. This situation aligns with Saudi Arabia's Vision 2030 strategy to diversify away from oil. Recent strategy shifts focus on sectors like tourism, industry, AI, and logistics, with investment from the Public Investment Fund. This pivot is accelerating targets in areas like logistics, with companies like Sirdab seeing increased demand for clearing containers from Red Sea ports. Tourist resorts on the Red Sea are also experiencing increased demand, primarily from Saudi residents. Hotel occupancy nationwide averaged 66.3% in January-March, a slight increase year-on-year. In contrast, hotel occupancy in Dubai is projected to drop significantly. Tourist numbers in Saudi Arabia rose 8% in the first quarter, with domestic travel compensating for a drop in inbound visitors. The kingdom reported a first-quarter budget deficit of $33.5 billion, attributed to increased military and government spending and a temporary cashflow lag. Rerouting crude oil to Saudi Red Sea ports has been a critical lifeline, according to Saudi Aramco's head. The IMF forecasts 3.1% growth for Saudi Arabia this year, outperforming neighboring economies like Qatar, Bahrain, and Kuwait.