Saudi Arabia’s economic growth is anticipated to recover in the latter half of 2024, as per research firm CreditSights. The kingdom’s GDP is projected to increase by 1.7% in 2024, with a further acceleration to 4.7% in 2025. This follows a 0.4% contraction in the second quarter of 2024, after a 0.8% contraction in 2023 and a 7.5% expansion in 2022.

CreditSights attributes the recent economic downturn in Saudi Arabia to the government’s strategic reduction in oil production aimed at stabilizing global prices and supporting public finances.

The recession appears to be easing, with signs of recovery evident as the GDP contraction narrowed to 0.4% in the second quarter of 2024, following more significant declines of 1.7% in the first quarter and 4.3% in the fourth quarter of 2023.

Saudi Arabia’s trade terms continue to be favorable, and with crude prices expected to stabilize around $80 per barrel, the external surplus is likely to remain marginally positive for the year.

Saudi Arabia’s sovereign USD bonds have slightly underperformed this year, with a year-to-date gain of 2.7%, compared to a 3.0% rise in the EM IG index. The bonds currently trade 25 basis points tighter than the EM IG index. While a potential widening of the fiscal deficit remains a concern if oil prices decline, CreditSights views this risk as limited due to the current global economic and geopolitical conditions.

“We maintain our ‘Outperform’ call on Saudi Arabia’s sovereign bonds,” said Regis Chatellier, Head of EM Sovereign Strategy at CreditSights. “The risk-reward is relatively attractive at current market levels, especially at the long end of the curve.”

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