After registering a stronger-than-expected recovery in 2021, the Saudi Arabian economy is on an accelerated path to growth in 2022, driven by higher oil prices and non-oil activities, as oil production strengthens and pandemic pressures fade. Saudi Arabia's direct trade with Russia and Ukraine is limited. Economic fallout on the oil markets from the war in Ukraine has strengthened Saudi Arabia's medium-term fiscal and external outlooks. Any new COVID-19 variants, tighter global financial conditions, and volatile oil prices are key risks.
Saudi Arabia continues to successfully control adverse impacts of the pandemic despite experiencing an outbreak of the Omicron variant at the end of 2021. With high vaccination rollout reaching 68% of the population, from January 2022 new cases were on a downward trajectory. Globally, Saudi Arabia continues to assume its pivotal role, under the OPEC+ structure, in resolving oil market imbalances through monthly oil production cuts of 0.4 mbpd, which started in July 2021.
Growth is expected to accelerate to 7% in 2022 before leveling out at 3.8% and 3.0% in 2023 and 2024, respectively. Stronger oil output is the main driver behind the recovery, which is expected to grow by 13% in 2022 following the end of the OPEC+ production cuts in December 2022. The non-oil sector is expected to continue its trajectory for growth, estimated at 4% in 2022 and 3.2% in the medium-term. Despite headwinds from tighter fiscal and monetary policies in the medium-term, stronger private consumption is anticipated, as well as an increase in religious tourism and higher domestic capital spending—signaled through the PIF and other state agencies. Headline inflation is projected to slow and hover at about 2% in 2022 as result of a stronger US dollar, against which the Saudi Riyal is pegged, and tighter monetary policy.