Saudi Arabia faces economic contraction as IMF projects 3.3 percent GDP drop

Saudi Arabia faces a major economic contraction this year, the International Monetary Fund said Tuesday, with Yemen's Houthi attacks adding pressure to a kingdom already hit by the Middle East war. The IMF's World Economic Outlook projects Saudi GDP will shrink by 3.3 percent.

How much will Saudi Arabia's economy contract this year?

The IMF expects Saudi Arabia's GDP to shrink by 3.3 percent, according to its latest World Economic Outlook. The fund projects the wider regional economy to contract by 0.3 percent, compared with 1.9 percent growth forecast six months ago. It expects a major rebound in 2027 if the Strait of Hormuz reopens.

How are Houthi attacks affecting Saudi Arabia?

The IMF report was compiled before 13 people were killed on Saturday, the deadliest attack in Saudi Arabia in more than a decade. The attack came during a series of lethal Houthi strikes on Riyadh's international airport. The restart in July of Yemen's frozen civil war has brought the fight to Saudi soil.

The war pits a Saudi-led coalition backing the internationally recognized government against the Houthis. Riyadh's coalition has supported Yemen's government militarily since 2015, in a long-running conflict that has created a deeply entrenched humanitarian crisis in the impoverished country. Houthi attacks have targeted Saudi oil facilities, oil tankers in the Red Sea, which is Saudi Arabia's alternative export route, and transport hubs including airports.

Blasts resounded over Riyadh again late on Monday. The Saudi coalition said it intercepted a Houthi missile, while the group said it had once again targeted the airport, whose operations remain suspended. In the evening, mobile phones received a government alert warning of a "hostile aerial threat" before the interception was announced.

Saturday's attack prompted US President Donald Trump to say he was considering joining Saudi strikes against the Houthis, after reportedly rebuffing previous requests for help from the kingdom. The Houthis warned the US against intervention. Political bureau member Mohammed Al Bukhaiti told AFP the group would target American interests in the region.

Bukhaiti said the campaign against Saudi targets was meant to send a message to the crown prince "that he can no longer wage aggression against Yemen from a safe position".

How is the Strait of Hormuz closure affecting Saudi Arabia's economy?

The kingdom was already facing headwinds from Iran's chokehold on Hormuz, a vital shipping route for oil and gas, since the Middle East war began in February. The war started when the US and Israel attacked Iran. Tehran has since sought to impose its control over the strait, repeatedly attacking ships that transit without its authorization.

The US has imposed its own counter-blockade on Iranian ports and has escorted friendly ships through the waterway in increasing numbers. The IMF cited a longer closure of the strait than its April baseline assumptions.

The fund said Saudi Arabia is among the least affected exporters in the region, pointing to "an economy with more diversified export routes". The kingdom has used its East-West oil pipeline to bypass Hormuz and send crude to its Red Sea coast. The pipeline was temporarily shut in September after strikes blamed on Iran-backed groups in Iraq.