Saudi Arabia's economy shrank 3.8% in the third quarter from a year earlier as oil activity fell 20.4%, preliminary estimates from the General Authority for Statistics (GASTAT) showed on Sunday. The decline was smaller than the 4.7% contraction in the second quarter, and non-oil activity grew 1.9%, up from less than 1% in the previous quarter.

For investors in Asia, the data offer a first official read on how far the conflict that began with U.S. and Israeli strikes on Iran on Feb. 28 has cut into the output of the world's largest crude exporter. Shipping through the Strait of Hormuz, a key corridor for global oil and gas, has been disrupted for months. The figures also suggest the worst of the hit may have passed: on a seasonally adjusted basis, real GDP grew 1.3% from the second quarter, reversing a 4.8% quarterly drop, GASTAT's data show.

Oil drags, non-oil holds up

The oil sector did most of the damage. GASTAT said oil activities subtracted 4.7 percentage points from annual growth. Government activities, which contracted 2.7% after growing 0.9% in the second quarter, took off another 0.4 point. Non-oil activities added 1.1 points, and net taxes on products added about 0.1 point.

The year-on-year oil figure was less severe than the 24.8% drop recorded in the second quarter. Quarter on quarter, oil activities rose 5.7% after seasonal adjustment, as production and exports partly recovered. Non-oil activities grew 0.6% from the previous quarter, after a 0.4% decline, while government activities fell 1.2%.

Reports differed on the second-quarter non-oil figure, with Arab News giving 0.8% and Asharq Al-Awsat 0.9%. GASTAT's own data tables show growth of 0.85% for that quarter; the authority reported it as 0.9% in its September release and charts it as 0.8% in the new flash publication. The statistics authority cautioned that its flash estimates are preliminary and that some underlying data are incomplete, so revisions are possible when fuller figures are published.

The third quarter also included a temporary shutdown of the East-West Pipeline in September, Asharq Al-Awsat reported. The pipeline carries crude across the kingdom to Red Sea ports, giving Saudi Arabia an export outlet that avoids Hormuz.

Business surveys point to firmer private activity heading into the fourth quarter. The Riyad Bank Saudi Arabia purchasing managers' index for the non-oil private sector rose to 55.3 in September from 53.8 in August, according to Arab News, citing the DataSaudi platform. Asharq Al-Awsat said the reading was the sixth straight month above the 50 mark that separates expansion from contraction. National unemployment fell to 6.5%, the newspaper reported.

IMF sees 2027 rebound

The International Monetary Fund's October World Economic Outlook projects that the Saudi economy will contract 3.3% in 2026 before growing 7.9% in 2027, as production, exports and logistics return to normal. The fund expects Saudi Arabia to be hit less than some neighbors because it has more export routes. It projects double-digit contractions this year in Bahrain, Iraq, Kuwait and Qatar, followed by double-digit rebounds in 2027, according to Arab News.

Saudi government estimates put this year's contraction at 3.6%, with a budget deficit of 4.9% of GDP, Asharq Al-Awsat reported. Non-oil activities now make up 57.3% of the economy, the newspaper said.

Abdullah Al-Mir, an assistant professor of economics at King Fahd University of Petroleum and Minerals, told Asharq Al-Awsat that non-oil sectors have "a greater capacity to withstand shocks" than the oil industry.

The corporate picture has also improved from the second quarter. Petrochemicals maker SABIC, 70% owned by Saudi Aramco, returned to profit in the third quarter after a loss in the second. Oil supply policy remains a swing factor: OPEC+ held its December output steady and meets again on Nov. 29 to discuss 2027 quotas.

What the numbers mean for Asia

Asian refiners that depend on Gulf crude have a direct stake in how quickly Saudi oil activity returns to prewar levels. A 20.4% annual drop in oil activities, even with a quarterly recovery, shows output remained well below last year's level through September.

The non-oil side matters for a different group of Asian investors: the contractors, banks and fund managers that have chased Saudi project spending and listings. Steady non-oil growth and a PMI above 55 suggest domestic demand held up, though the 2.7% fall in government activities shows the state is spending less directly.

GASTAT's fuller third-quarter national accounts, due after the flash release, will show whether the 3.8% figure holds. The Finance Ministry's 2027 budget, which will set spending plans against the projected rebound, is the next major data point for the kingdom's fiscal path.