Saudi Arabia's economic indicators show a growing ability to withstand external shocks, supported by an expanding non-oil sector that has continued to grow despite geopolitical tensions and disruptions to regional trade and energy routes.
Although gross domestic product (GDP) contracted by 3.8% year on year in the third quarter of 2026, the pace of decline slowed from a 4.7% contraction in the second quarter. Non-oil activities grew by 1.9%, accelerating from 0.9% in the previous quarter, while oil activities declined by 20.4%.
The significance of this performance is particularly evident given the exceptional circumstances of the third quarter, including disruptions to shipping through the Strait of Hormuz and the temporary shutdown of the East-West Pipeline in September.
Seasonally adjusted real GDP also grew by 1.3% compared with the second quarter, indicating an improvement in economic activity on a quarterly basis and reflecting the ability of certain sectors to continue expanding despite the sharp contraction in oil activities.
Annual and Quarterly Performance
According to data from the General Authority for Statistics, oil activities were the main driver of the GDP contraction, contributing a negative 4.7 percentage points, while government activities subtracted 0.4 percentage points.
By contrast, non-oil activities made a positive contribution of 1.1 percentage points, while net taxes on products added approximately 0.1 percentage points.
The data also showed an improvement in economic performance on a quarterly basis, with seasonally adjusted real GDP increasing by 1.3% in the third quarter compared with the second quarter of this year.
The growth was driven by a 5.7% increase in oil activities and a 0.6% rise in non-oil activities, while government activities declined by 1.2%.
Last month, the International Monetary Fund (IMF) noted that Saudi Arabia's available fiscal buffers and alternative oil export facilities were helping limit the economic damage caused by the war. The Fund considered the Kingdom better positioned than its Gulf peers to contain the fallout from the disruptions.
The IMF projected a strong recovery in the Saudi economy in 2027, forecasting growth of 7.9% amid expectations of a rebound in oil activities and improvements in trade and shipping.
These projections are particularly significant in light of Saudi government estimates that the economy will contract by 3.6% in 2026, with the projected budget deficit rising to 4.9% of GDP.
The contrasting performance of oil and non-oil activities underscores the importance of the structural transformation underway in the Saudi economy.
Non-oil activities are no longer merely an additional contributor to GDP. They are playing an increasingly important role in absorbing shocks and limiting the transmission of volatility in the energy sector to the broader economy.
Promising Sectors
Since the launch of Vision 2030, the Saudi government has pursued a clear strategy to diversify income sources and broaden the economic base by accelerating non-oil growth and developing promising sectors.
These include information technology and artificial intelligence, transportation and logistics, tourism, entertainment and quality of life, renewable energy and sustainability, as well as mining, manufacturing and other targeted industries.
These efforts have helped diversify sources of economic activity and strengthen the contribution of non-oil sectors, giving the Saudi economy greater flexibility to withstand external fluctuations by diversifying sources of value added and expanding the role of domestic businesses and the private sector.
Consumer Spending
In this context, Dr. Abdullah Al-Mir, Assistant Professor of Economics at King Fahd University of Petroleum and Minerals, told Asharq Al-Awsat that the contraction in the Saudi economy during the third quarter was not broad-based. Instead, it was concentrated largely in oil activities, which declined by approximately 20%.
Non-oil activities, meanwhile, continued to grow by 1.9%, playing an important role in cushioning the impact of the sharp decline in the oil sector.
According to Al-Mir, government spending and private sector activity are two key pillars of this resilience. Continued consumer spending by households and the private sector helps sustain domestic demand in trade, retail, hospitality, services and transportation, all labor-intensive activities directly linked to the non-oil economy.
He noted that the Riyad Bank Purchasing Managers' Index (PMI) reached 55.3 in September 2026, remaining in expansion territory for the sixth consecutive month, reflecting continued improvement in non-oil private sector activity.
Al-Mir explained that the importance of non-oil activities becomes even clearer when the energy sector slows. Sustained activity in services, entertainment and domestic tourism helps small and medium-sized enterprises remain operational, preserves local supply chains and supports employment opportunities.
He emphasized the importance of strengthening the resilience of the non-oil private sector against external volatility.
Al-Mir added that one of the most significant signs of Saudi Arabia's economic transformation was the increase in the share of non-oil activities to 57.3% of the economy, describing it as a historic level that reflects a structural shift in the country's economic composition.
He linked this transformation to the decline in the unemployment rate among Saudi nationals to 6.5%, highlighting the potential impact of expanding non-oil activity on the labor market.
Al-Mir noted that sectors such as tourism, entertainment, technology and manufacturing continued to expand despite geopolitical disruptions that affected oil production and shipping, further demonstrating the structural transformation of the Saudi economy.
"Non-oil activities have a greater capacity to withstand shocks, while sustained investment momentum associated with Vision 2030 provides an alternative source of growth," he said.
