Video|28 November 2024
MENA | Can Saudi Arabia Thrive Beyond Oil?
Scott Livermore
Chief Economist & Managing Director
Saudi Arabia’s credit rating was raised by Moody’s to its highest level since 2016 and third highest in the region. The upgrade commends the Kingdom’s economic diversification progress and resilience of the non-energy sectors in the face of extended oil production cuts and challenges posed by lower oil income. It aligns with our view that the non-energy sectors will continue to drive the economy; indeed, we project annual non-energy GDP growth to exceed 5% over the next three years.
The Bank of Israel kept its interest rate at 4.5% this week, noting risks to price and financial stability from the continuing war. Inflation is above the 3% ceiling of the central bank’s target range and will rise further in the near-term, suggesting any rate cuts will be delayed well into 2025.
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For Gulf cities, the near-term outlook will be tied not only to the global macroeconomic backdrop, but also the progress of the diverse visions and strategies in the region. With the aim to diversify their economies and reduce the dependence on oil, Gulf states continue to invest in the non-oil economy and implement various reforms. That said, oil revenues remain key to funding diversification efforts.
The military escalation between Iran and Israel has ratcheted up fears of an expanded Middle East conflict. The threat of counter strikes by Israel is clearly heightened, but we think both sides will ultimately seek to avoid a costly all-out war.
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