The slowdown in the contraction of industrial production in Saudi Arabia and financial warnings about the boom in artificial intelligence

The severity of the contraction in industrial production in Saudi Arabia slowed during the month of July 2026 on an annual basis, recording 8.1 percent, compared to a decline of 16.6 percent in June, the lowest pace of decline the Kingdom has witnessed in five months, according to recent data from the General Authority for Statistics.

This improvement was a major result of the decline in pressure on oil activities, coinciding with the increase in the Kingdom’s production of crude oil, while non-oil activities continued their balanced, close-to-stable performance.

Oil activities, which constitute about 75 percent of the weight of the industrial production index, recorded a decrease in their annual contraction to reach 11.4 percent in July (compared to 23.5 percent in June), continuing to reduce losses for the third month in a row after recording a decline of 25.5 percent in May and 27.6 percent in April.

“Non-oil” stability

In contrast, non-oil industrial activities maintained an almost stable performance, with a slight decline of 0.3 percent year-on-year in July (compared to 0.2 percent in June).

Despite the annual stability, the following August indicators show positive growth angles in the non-oil private sector: The Riyad Bank Purchasing Managers’ Index rose to 53.8 points, recording its highest level in 6 months. Production recorded the strongest growth pace in 7 months, driven by strong domestic demand, despite the continuing challenges associated with high shipping and raw material costs and weak export orders due to regional tensions.

European stocks rose slightly, Thursday, after recording their largest selling wave in two months in the previous session, while investors awaited the upcoming monetary policy decision from the European Central Bank, in addition to the statements of the bank’s president, Christine Lagarde, regarding developments in oil prices and their repercussions on the path of inflation.

The European Stoxx 600 index rose 0.1 percent to 641.23 points by 07:08 GMT. The German DAX index remained unchanged, while the British Financial Times 100 index rose by 0.1 percent, and the French CAC 40 index added about 0.3 percent, according to Reuters.

European markets suffered sharp losses in Wednesday's session, as stocks fell by about 1.4 percent after Brent crude exceeded the level of $100 a barrel for the first time since July, which raised new concerns about inflation and reinforced expectations that central banks may have to maintain their tight monetary policies for a longer period.

Oil prices stabilized above the $100 per barrel barrier on Thursday, after Iran and the United States launched the largest wave of attacks on maritime shipping since the outbreak of the ongoing conflict six months ago, which increased concerns about global energy supplies.

It is widely expected that the European Central Bank will announce later today a 25 basis point hike in interest rates, in a move that opens a busy period of major central bank meetings. The Federal Reserve and the Bank of Japan are scheduled to announce their monetary policy decisions next week.

On the corporate level, Associated British Foods announced that comparable sales for the fashion store chain Primark are expected to decline by about 3 percent during the fourth quarter ending September 12, prompting the company's stock to decline by 8.6 percent.

The cautious performance of European markets reflects the state of anticipation prevailing among investors, at a time when fears are increasing that the continued rise in energy prices will slow the pace of decline in inflation, and thus delay any possible shift towards a more flexible monetary policy during the coming period.

The rapid rise of artificial intelligence poses new risks to financial stability, with associated infrastructure spending reaching a level significant enough to impact global economic conditions, said Pablo Hernandez de Cos, President of the Bank for International Settlements.

For central banks, artificial intelligence does not change their monetary policies, but it makes it more difficult to understand economies by affecting supply, demand, and financial markets at the same time, according to Reuters.

The Bank for International Settlements estimates that the five largest technology companies in the world will invest more than $1 trillion in artificial intelligence during the years 2025 and 2026, while sector expectations indicate that global investment in artificial intelligence may rise from about $500 billion currently to up to $4 trillion by 2030.

“The promise of artificial intelligence is real,” De Cos said at a conference hosted by the Reserve Bank of India, warning at the same time that its long-term impact will depend on policy choices, investment in skills and infrastructure, and how broadly its benefits are distributed.

He added that the artificial intelligence boom is increasingly being financed through debt and private credit rather than corporate profits, which calls for intense scrutiny, given that a large portion of this financing remains “ambiguous and interconnected.”

Artificial intelligence is also changing global trade flows. Economies closely linked to technology supply chains, including South Korea, Singapore, Malaysia and Taiwan, have benefited from higher export prices of chips and AI equipment.

De Cos pointed to evidence suggesting that generative AI can significantly boost productivity. Studies have shown gains ranging from 10 percent to 65 percent on specific tasks, particularly in the areas of programming, consulting, and professional writing.

The broader question is the extent to which these improvements reflect economy-wide productivity growth.

Current estimates suggest that AI could raise total factor productivity growth by about half a percentage point annually, depending on the pace of its adoption and the effectiveness of reallocation of labor and capital.

Developed economies are expected to benefit first, given the larger size of their service sectors and their greater willingness to apply artificial intelligence. Emerging economies face a more mixed outlook, although De Cos said India had a “real opportunity” to narrow the gap, supported by its public digital infrastructure.

Job losses and opaque financing

Although AI can boost worker productivity, it may also replace routine cognitive tasks, De Cos said.

So far, job losses remain limited, but there are signs of this in the areas of customer service, programming and administrative functions, making retraining and upskilling crucial.

He added that high valuations, market concentration, and opaque financing structures could create vulnerabilities if corporate profits do not live up to expectations.

He continued: “I am not saying that this is the inevitable fate of the boom in artificial intelligence, but the size and speed of the current investment boom, and the weight of the expected commercial returns, call for caution,” pointing to similarities with previous booms, such as the era of railway expansion and the heyday of Internet companies.