Saudi Economy Shrinks 3.8% in Q3 as Oil Activity Falls 20.4%; Non-Oil Growth Picks Up to 1.9%

Saudi Arabia's economy contracted 3.8% year on year in the third quarter of 2026, its second consecutive quarterly decline, according to flash estimates from the General Authority for Statistics (GASTAT). The drop was smaller than the 4.7% contraction in the second quarter, and on a seasonally adjusted quarterly basis the economy grew 1.3%, reversing a 4.8% quarterly decline.

Oil drove the decline. Oil activities fell 20.4% from a year earlier, an improvement from the 24.8% contraction in Q2, as the war involving Iran and escalating conflict with Yemen's Houthi rebels disrupted production and exports. Quarter on quarter, oil activities rose 5.7%. The kingdom has been redirecting crude shipments through a pipeline to a Red Sea terminal, and Brent has traded above $115 a barrel. Bloomberg noted the figures capture a slower pace of contraction before the latest Houthi escalation, so the quarter does not yet reflect it.

Non-oil activities grew 1.9% year on year, up from 0.8% in Q2, and rose 0.6% quarter on quarter after a 0.4% decline. Government activities contracted 2.7%, reversing 0.9% growth in Q2. The non-oil PMI rose to 55.3 in September from 53.8 in August, supporting the view that diversification is cushioning the shock.

Authorities have projected a 3.6% contraction for full-year 2026 and raised their expected budget deficit to 4.9% of GDP. The flash numbers are preliminary. What to watch: whether the late-October Houthi escalation pushes Q4 oil activity back down, how the wider deficit is financed, and whether non-oil momentum holds as government activity shrinks.