S&P Global Ratings has affirmed Saudi Arabia’s long- and short-term sovereign credit ratings at A+/A-1, with a stable outlook, amid the ongoing Middle East conflict.

The agency expects the kingdom’s real GDP to contract by 0.9% in 2026 before rebounding by 8.2% in 2027, with growth averaging 3.3% in 2028-2029.

The outlook reflects Saudi Arabia’s ability to absorb the geopolitical disruption through a combination of fiscal and external buffers, diversified energy-export infrastructure and continued non-oil economic activity. S&P also points to the government’s ability to adjust the pace of Vision 2030-related investment as an important source of fiscal flexibility.

The kingdom’s real GDP decreased 4.7% in the second quarter of 2026 compared to the same quarter of 2025, according to estimates by the General Authority for Statistics (GASTAT). This was attributed to a 24.8% decline in oil activities, while government activities and non-oil activities both increased 0.9%. On a seasonally adjusted basis, real GDP fell 4.8% compared to the first quarter. Oil activities dropped 21.6%, while non-oil activities decreased 0.4%. Government activities, on the other hand, grew 0.2% on a quarterly basis.

Despite this, Saudi Arabia’s business confidence strengthened in August, with the overall Business Confidence Index rising to 56.7, from 56.5 in July. The reading remained above the 50-point threshold, indicating that businesses continued to anticipate expansion in the near term.

The improvement was broad based across industry and services. The industry index increased to 55.8 from 54.7, supported by stronger expectations for overall performance and employment. Services confidence rose to 56.1 from 55.3, reflecting greater optimism around performance and fixed investment. Construction remained the strongest of the three sectors at 57.3, although it eased from 57.7 amid weaker expectations around input costs.

The August reading extends a recovery in business sentiment in 2026 and indicates that non-oil businesses remain resilient.

STRONG RECOVERY

S&P’s projected 2027 rebound is expected to be led by higher oil production as disruptions ease. The agency also anticipates growth to moderate to an average of 3.3% in 2028 and 2029. The outlook therefore assumes that much of the current disruption represents a delay in economic activity rather than a permanent loss of output.

Saudi Arabia’s non-oil economy provides another source of resilience. S&P estimates that non-oil activity, including government services, now represents about 70% of GDP, compared with 65% in 2018. Consumer spending has helped sustain non-oil activity despite the broader disruptions, while continued structural reforms are expected to support medium-term growth.

FISCAL FLEXIBILITY

Fiscal and external buffers remain central to the sovereign rating. S&P highlights the kingdom’s substantial net general government asset position and foreign-exchange reserves, which it says have reached their highest level since early 2020.

The government and Public Investment Fund (PIF) have been recalibrating the pace of some Vision 2030 projects, providing an additional mechanism to manage expenditure. S&P expects this flexibility to help contain fiscal pressures while allowing the broader transformation programme to continue. The agency expects the fiscal deficit to be 5.8% of GDP in 2026, before narrowing to an average of 3.4% over 2027-2029. Gross government debt is projected to reach 37.2% of GDP by 2029, while the government’s net asset position is expected to remain positive.

The rating assessment therefore balances a subdued near-term growth outlook against considerable financial buffers and structural changes in the economy.

Overall, the A+1 affirmation suggests that Saudi Arabia’s credit profile continues to benefit from substantial financial buffers and increasing economic diversification. The ability to manage Vision 2030 investment, maintain export capacity, and sustain non-oil activity will be important to preserving those strengths over the medium term.