Saudi Arabia: Saudi Arabia’s economy is poised for substantial growth, with its gross domestic product projected to increase from 1.2 percent in 2024 to 3.8 percent in 2025.

The projection by the Organisation for Economic Cooperation and Development comes amid global economic uncertainties, as many advanced economies are expected to face sluggish growth due to escalating trade tensions, geopolitical instability, and inflationary pressures.

This forecast signals a turnaround for the Kingdom, positioning it as one of the fastest-growing economies within the G20 in the coming years. While Saudi Arabia’s GDP growth is expected to moderate slightly to 3.6 percent in 2026, global GDP growth is projected to slow to 3.1 percent in 2025 and 3 percent in 2026.

Stable inflation

The OECD report also forecasts that Saudi Arabia’s inflation will remain low and stable, projected at 1.9 percent in 2025 and 2 percent in 2026. This stands in contrast to the higher inflation rates seen in many major economies, particularly those facing trade-related disruptions and rising labor costs.

The US economy is expected to see growth slow from 2.8 percent in 2024 to 2.2 percent in 2025 and 1.6 percent in 2026, as higher interest rates and trade tensions dampen investment and consumer spending. Similarly, the eurozone’s economy is projected to grow by just 1 percent in 2025 and 1.2 percent in 2026. China’s economy is also expected to decelerate, with growth slowing from 4.8 percent in 2025 to 4.4 percent in 2026.

Trade fragmentation and geopolitical risks

A key concern highlighted by the OECD is the growing rise of trade barriers and their potential impact on global economic stability. “Increasing trade restrictions will contribute to higher costs for both production and consumption. It remains essential to maintain a well-functioning, rules-based international trading system and keep markets open,” Cormann added.

The US has raised tariffs on imports from China by 20 percentage points, prompting retaliatory actions from China. In addition, higher tariffs on steel, aluminum, and other goods are expected to disrupt supply chains and increase production costs globally.

The OECD warned that such trade fragmentation could slow global growth and push inflation higher, particularly in economies heavily dependent on international trade. The report also noted that if trade tensions escalate further, global GDP could decline by an additional 0.3 percent over the next three years, with particularly severe effects on Canada, Mexico, and key European economies.

Monetary policy and inflation pressures

The OECD’s outlook also indicated that inflation remains a significant concern in many economies. While inflation is expected to moderate, it is likely to stay above central bank targets in key economies like the US, the eurozone, and the UK through 2026.

“Central banks should remain vigilant given heightened uncertainty and the potential for higher trade costs to push up wage and price pressures. Provided inflation expectations remain well-anchored, and trade tensions do not intensify further, policy rate reductions should continue in economies where underlying inflation is projected to moderate or remain subdued,” the report stated.

For emerging markets, inflation presents a mixed picture. Brazil and South Africa are expected to face persistent inflationary pressures, while India and Indonesia may see inflation remain relatively contained. Countries like Turkiye and Argentina, which have dealt with extreme inflation in recent years, are projected to see a sharp decline in inflation rates as fiscal and monetary tightening measures take effect.

The role of AI, structural reforms

Beyond trade and monetary policy, the OECD report emphasized the importance of structural reforms and digital transformation in enhancing long-term economic resilience.

“Governments can help by ensuring the availability of high-speed digital infrastructure, maintaining open and competitive markets, and providing opportunities for workers to enhance their skills,” the report noted.

OECD Chief Economist Alvaro Santos Pereira highlighted that AI is poised to drive significant labor productivity growth over the next decade, with even greater potential when combined with advancements in robotics.

“Yet, the gains from AI may diminish if policies do not facilitate higher adoption rates and support labor reallocation,” Pereira warned.

Navigating uncertainty

The OECD called for stronger international cooperation to prevent further trade fragmentation and urged governments to adopt a balanced approach to fiscal and monetary policies. It cautioned that excessive tightening of monetary policy could unnecessarily slow growth, while failing to manage inflation could lead to additional economic disruptions.