Saudi Arabia’s GDP in 2025 is projected to grow by 3.7% year over year, continuing to outperform global GDP growth, which is forecast at 3.2.% – a modest increase on 3.1% in 2024, says the Mastercard Economics Institute. 

 

Meanwhile, consumer spending in the kingdom is predicted to rise by 4.5%, and consumer price inflation is likely to reach 2%, said Mastercard in its ‘Economic Outlook 2025’, its annual report identifying the themes that will shape next year’s economic landscape. 

 

The global economy has managed through a series of shocks admirably over the past few years. The report anticipates 2025 to be defined by shifts in monetary and fiscal policy and a move toward equilibrium rates for growth and inflation.

 

Robust non-oil economic activity

Saudi Arabia’s growth is underpinned by robust non-oil economic activity. In line with Vision 2030, economic diversification efforts will continue as the government leverages strong balance sheets to finance investment in infrastructure. Private sector investment should also benefit from lower interest rates, supporting employment and domestic consumption. Population growth is an important driver of economic activity, and particularly private consumption.

 

Tourism is likely to remain a bright spot for the region’s economies. The GCC’s strong push to develop its tourism offerings has positioned it as one of the fastest-growing destinations in the world. In addition, the strength of the region’s USD-pegged currencies is fueling the demand for outbound travel.

 

“With robust non-oil economic activity and continued investments aligned with Vision 2030, Saudi Arabia is set to maintain its strong growth trajectory, outpacing global markets. As we move into 2025, a year shaped by evolving fiscal and monetary policies, the Kingdom's diversification efforts and supportive economic reforms will solidify its position as a key driver of regional economic expansion. These structural shifts will continue to redefine economic landscapes, charting new pathways for sustainable growth,” said Khatija Haque, chief economist, EEMEA, Mastercard.

 

Key findings from the report

Pricing priorities: travel twins and meaningful experiences

As the prices of goods and services increase, consumers may adjust their buying intentions. For essential goods and services without many substitutes, quantities purchased are unlikely to fall much in response to an increase in prices. However, for those with varied price levels available, we may see ‘trading-down’ – opting for more affordable versions of the product or experience. 

 

In the travel economy, savvy travellers are increasingly turning to ‘travel twins’, which offer similar attractions and experiences as popular tourist hubs, but at lower prices or with smaller crowds. For example, in Southeast Asia, Lombok's stunning beaches and serene landscapes offer an alternative to the bustling crowds of Bali for Saudi travellers.

 

In line with the continued growth of the experience economy in previous years, the region still observes a strong desire to prioritise spending on “big moments” over material things. This trend is especially prevalent in Saudi Arabia, where the spending on meaningful experiences as of February 2024 grew by 451% compared to the same time in 2019. The latest data from September 2024 shows an increase of 326%. This surge is driven by the country’s focus on expanding its selection of leisure and entertainment facilities as well as the hosting of large-scale events.

 

Migration and money

The last few years revealed significant shifts in people and, by extension, capital. Inbound migration greatly enriches the region’s human capital. In Saudi Arabia, net migration contributed 4.4% to the population growth between 2019 and 2023. 

 

Migration also generates substantial remittances, which serve as a lifeline between expats working in thriving economies, such as Saudi Arabia, and their families from low- and middle-income communities in developing economies. The report highlighted a study from the World Bank that remittances surged from $128 billion in 2000 to $857 billion in 2023, with an estimated growth of 3% in 2024 and 2025. Economic recovery and local reforms are expected to sustain remittance growth through 2025, while the continued digitisation of the payments industry allows recipients to shift to digital and mobile channels, resulting in considerable cost efficiencies, security and convenience.   

 

The rise of the SHEconomy

The global economy saw the ‘great resignation’ turn into the ‘great return’. To varying degrees across countries, there has been a return of workers, particularly in the younger cohort and, interestingly, women. The latest World Bank data shows that women’s representation in the Saudi work force grew from 18% in 2017 to 34.5% in 2023. This marked increase is mainly due to the easing of social and other restrictions in the Kingdom in recent years, driven by its ambitious Vision 2030 that seeks to build a thriving economy where everyone has the opportunity to succeed.

 

There are several other potential explanations for this phenomenon. One, women’s labor force participation likely reflects the disproportionate job creation in female-dominated sectors, such as healthcare and education. In addition, the rise of remote work and the flexibility it brings tends to help women, who are often still the primary caregivers, as it makes it easier to raise children while working. Many of these dynamics will remain true in 2025, with positive implications for the economy due to driving consumption growth by increasing households’ disposable incomes. 

 

Global inflationary pressures continue to ease 

Inflation across major economies eased significantly in 2024, underpinned by lower prices of durable goods and reduced inflation for nondurable goods. While upside risks to good prices remain due to tariffs, moderating wage growth is expected to decrease services inflation. The Mastercard Economics Institute predicts trimmed global inflation at 3.2% (removing the top and bottom 10% outliers).

 

The ‘Economic Outlook 2025’ report draws on a multitude of public and proprietary data sets, including aggregated and anonymised Mastercard sales activity, as well as models that are intended to estimate economic activity.--TradeArabia News Service