Morgan Stanley revised its 2026 growth forecast for Saudi Arabia downward, citing a contraction in real oil activity that is expected to continue into the third quarter of 2026.
The downgrade is driven by lower oil export volumes and trade disruptions, although higher oil prices are expected to sustain oil‑related revenues and government spending.
Despite the downgrade, Morgan Stanley retains an overweight rating on Saudi Arabia, highlighting the kingdom’s resilience due to its ability to reroute oil exports away from the Strait of Hormuz, its low reliance on expatriate labour among GCC peers, and continued fiscal support and private consumption.
The firm notes improving system liquidity, ongoing fiscal backing, and anticipates accelerated investment in energy security and infrastructure, which should underpin earnings growth.
Sectorally, Morgan Stanley favors banks, financials, energy and industrials as the best positioned to benefit from the prevailing oil‑driven macro backdrop.
