The International Monetary Fund expects the Saudi economy to record strong growth of 7.9 percent during the year 2027, in an expected reflection of the recovery of energy production and exports and the gradual restoration of regional trade movement, with the decline of war-related disturbances and the reopening of the Strait of Hormuz according to the report’s basic scenario.
The expectations reflect the ability of the Saudi economy to regain its momentum after the pressures imposed by the disruptions in energy production and transportation during the current year, benefiting from the diversity of oil export routes and the infrastructure that allows directing a portion of exports through the Red Sea, away from the Strait of Hormuz.
In the October World Economic Outlook report, the Fund estimated that the Saudi economy would contract by 3.3 percent during 2026, before growth rose to 7.9 percent the following year. In April, the Fund expected growth of 3.1 percent in 2026 and 4.5 percent in 2027, which reflects a major change in the course of expectations with developments in the war and assumptions about the return of economic activity.
An export structure that supports economic flexibility
The Saudi economy benefits from having alternative outlets for exporting oil, most notably the “East-West” pipeline, which transports crude from the eastern region to the port of Yanbu on the Red Sea, with a capacity of about 7 million barrels per day. The Kingdom aims to raise the capacity of oil pipelines to 10 million barrels per day, thus enhancing the flexibility of the export system in the face of navigation disturbances.
These alternatives enhance the Kingdom's ability to reduce the impact of navigation disturbances on oil flows, while allowing the gradual recovery of production and exports, according to the Fund's assumptions, in support of economic activity during the coming year.
Gulf recovery led by the return of energy production
The expected strong growth is not limited to Saudi Arabia, as the Fund expects other Gulf economies to recover at high rates in 2027, with the restoration of production, exports, and logistics services. The Qatari economy is expected to grow by 18.8 percent, the Kuwaiti economy by 17.1 percent, the Bahraini economy by 13.9 percent, and the Emirati economy by 7.7 percent, while growth in the Sultanate of Oman is likely to reach 2.2 percent.
These expectations come after severe pressures during 2026, during which the economy of Kuwait is likely to contract by 16.7 percent, Qatar by 15.6 percent, and Bahrain by 11.3 percent, compared to 3.9 percent for the UAE, while the Sultanate of Oman is expected to achieve growth by 4.1 percent.
The Fund's basic scenario assumes the start of reopening the Strait of Hormuz in March 2027, and a general return to pre-war conditions by October of the same year, with energy flows, shipping traffic, insurance, and payments gradually restored.
The speed of achieving this recovery remains linked to the course of the conflict and the stability of navigation, but the diversity of Saudi export outlets constitutes a supportive factor for the economy’s ability to absorb shocks and restore growth as regional conditions improve.
Asian stocks fell strongly on Tuesday, led by technology and semiconductor stocks, as the conflict in the Middle East expanded and oil prices continued to rise, which strengthened inflationary pressures and kept the dollar at high levels, at a time when the markets were preparing for an important test with the start of the season of announcing the results of American companies.
Energy prices have returned to the forefront of global market drivers, with investors assessing the repercussions of geopolitical developments in the Middle East and the war between Russia and Ukraine. Brent crude futures reached $105.9 per barrel, near their highest levels in two weeks, amid fluctuations resulting from supply risks after the attacks on Saudi Arabia, versus the possibility of increasing Russian diesel supplies.
Charu Chanana, chief investment strategist at Saxo in Singapore, said that markets are rediscovering the importance of geopolitics when its repercussions are reflected in inflation. She added that the new rise in oil prices is putting pressure on bond yields and limiting the attractiveness of highly valued growth stocks, especially with the fragility of the energy-related truce between Russia and Ukraine and the continuing supply risks in the Middle East.
In stock markets, the broader index of Asia-Pacific shares excluding Japan, affiliated with MSCI, fell by 2 percent in early trading, while the South Korean KOSPI index, which is heavy on technology stocks, fell by 6 percent. Japan's Nikkei index fell 2.6 percent as trading resumed after a holiday.
Kyle Rodda, senior analyst at Capital.com, attributed some of the losses to the wave of selling that affected semiconductor stocks on Wall Street during the previous session, and its effects extended to the Asian markets.
The Nasdaq index fell 0.5 percent on Monday, affected by the losses of chip companies, amid investors’ concerns about the sustainability of the rise in artificial intelligence stocks in light of the intensifying competition between the United States and China. Ruda added that the rise in oil again, along with the concentration of investors ahead of the release of inflation data and the announcement of corporate results, strengthened the tendency to avoid risks in Asia.
This cautious atmosphere helped keep the dollar near its highest levels in 18 months, while the euro was trading at $1.1157, and the Japanese yen at 158.50 yen to the dollar.
The results of American banks are under test
Investors' eyes are turning to US bank results this week, searching for indicators about the impact of the recent rise in Treasury bond yields on lending activities, deal-making, and financing costs.
Inflationary pressures resulting from rising energy prices, coupled with concerns about growing government debt, have led to repeated selling waves in bond markets in recent weeks, pushing borrowing costs to high levels not seen in markets around the world for decades.
Four of the six largest US banks, JPMorgan Chase, Goldman Sachs, Citigroup and Wells Fargo, are scheduled to announce their results later Tuesday.
Anthony Saglimbeni, chief market strategist at Ameriprise Financial, said that investors will look in banks’ results for indicators that families will continue to meet their obligations and borrow and spend at healthy levels.
He added that the third quarter results season begins with stocks close to record levels, which leaves limited room for disappointment, noting that the continued rise of stocks requires strong results from companies and their ability to maintain momentum until the end of the year.
In the bond market, the ten-year US Treasury bond yield fell 2.9 basis points to 5.214 percent during Asian trading, remaining close to its highest level in 24 years, of 5.364 percent, which it recorded last week.
The dollar fell in Asian trading, Tuesday, with oil prices falling and US bond yields stable, at a time when global stocks declined, while investors’ focus shifted to US inflation data expected on Wednesday, searching for new indicators regarding the path of interest rates.
The dollar index, which measures the performance of the US currency against a basket of six major currencies, fell by 0.2 percent to 102.39 points, declining as it approached its highest levels since April of last year.
Ten-year US Treasury bond yields fell 5 basis points to 5.192 percent, with trading resuming after the US bond markets holiday on Monday.
In energy markets, Brent crude futures fell 1.4 percent to $105.20 per barrel, with traders evaluating the possibilities of increasing Russian diesel supplies, despite the continued attacks on Ukrainian energy facilities after US President Donald Trump announced a truce in the energy sector between Moscow and Kiev. Supply risks in the Middle East also remained present following the recent attacks on Saudi Arabia.
The decline in energy costs and the stability of Treasury bond yields contributed to undermining some of the gains made recently by the dollar against major currencies, while a clear wave of demand for the US currency as a safe haven did not appear, despite the decline in stock markets.
The euro rose 0.2 percent to $1.1177, and the British pound rose 0.1 percent to $1.3219. The Japanese yen also rose 0.2 percent to 158.215 yen to the dollar, after data showed that Japanese wholesale producer prices rose by 6.8 percent on an annual basis in September, below market expectations of 7.6 percent, but remained at a level that reinforces expectations of tightening monetary policy.
The Chinese yuan settled in external transactions at 6.6961 yuan to the dollar, near its strongest levels in four years. The Australian dollar also stabilized at $0.6960, after the minutes of the September meeting of the Reserve Bank of Australia, which showed the members’ consensus to raise interest rates for the fourth time this year, with the continued risks associated with the entrenchment of inflation and the possibility of resorting to a fifth increase if necessary.
In New Zealand, the New Zealand dollar rose 0.1 percent to $0.5589, moving away from its lowest level in 18 months.
Inflation determines the path of interest
Markets are awaiting the release of the US consumer price index on Wednesday, amid expectations that the data will reinforce bets on continued monetary tightening. On the other hand, traders still expect the Federal Reserve to keep interest rates unchanged at its next meeting scheduled for October 27 and 28.
Data from the CME Group's Fed Watch tool showed that markets were pricing in a probability of 80.6 percent to keep interest rates unchanged, compared to 82.3 percent on Friday.
Analysts at DBS pointed out that the objections of a number of Federal Reserve officials to raising interest rates in two consecutive meetings may limit additional gains for the dollar.
In cryptocurrency markets, Bitcoin fell 0.4 percent to $82,705.08, and Ethereum fell 1.4 percent to $2,481.40.
