Saudi Arabia Investment

Economy slips into contraction in the second quarter of 2026

The Middle East war dampens growth: Saudi Arabia's GDP contracted 4.8% on a year-on-year basis in Q2, following a 3.0% expansion in the previous quarter. Q2's reading was the weakest in six years. This downturn was primarily driven by a steep slump in the oil sector amid the conflict in Iran and the closure of the Strait of Hormuz, alongside a marked deceleration in non-oil activities. On a seasonally adjusted quarter-on-quarter basis, the economy contracted 4.9% in Q2, following a 1.2% contraction in the previous quarter.

Oil sector drives economic deceleration: Compared with the previous period's data, readings in Q2 softened for oil GDP (-24.7% on a year-on-year basis vs +2.9% in Q1), private non-oil GDP (+0.6% vs +2.9% in Q1) and government non-oil GDP (+0.9% vs +1.4% in Q1).

Economic recovery remains tied to regional stability: Our panelists have slashed their GDP growth forecasts since the conflict in the Middle East started. GDP growth is now projected to hit a three-year low in 2026. The oil sector will face the steepest decline, with our Consensus falling by more than 14 percentage points since the war began, as all panelists now project a contraction—with some even forecasting double-digit declines. While non-oil activity is also expected to decelerate noticeably, our Consensus is that it will manage to remain in expansion territory. The economic outlook remains heavily reliant on the trajectory of the regional conflict and the reopening of key export corridors.

How should you choose a forecaster if some are too optimistic while others are too pessimistic? FocusEconomics collects Saudi Arabian investment projections for the next ten years from a panel of 6 analysts at the leading national, regional and global forecast institutions. These projections are then validated by our in-house team of economists and data analysts and averaged to provide one Consensus Forecast you can rely on for each indicator. By averaging all forecasts, upside and downside forecasting errors tend to cancel each other out, leading to the most reliable investment forecast available for Saudi Arabian investment.

Download one of our sample reports to visualize what a Consensus Forecast is and see our Saudi Arabian investment projections.

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