Blog

Think of Saudi Arabia and the first thing that comes to mind might be its massive, oil-derived wealth.

While oil continues to drive Saudi Arabia’s economy, the kingdom is now expanding into areas such as artificial intelligence, tourism and sports to diversify its growth avenues.

According to Saudi Arabia’s Minister for Investment Khalid Al Falih, more than half — 50.6% — of the Saudi economy is now “completely decoupled” from oil.

“This percentage is growing,” Al Failh told CNBC’s Dan Murphy, adding that government revenue used to be almost completely derived from oil money, but now, 40% of its revenue comes from sectors and sources that “have nothing to do with oil.”

“We’re seeing great results, but we’re not satisfied. We want to do more. We want to accelerate the kingdom’s diversification and growth story,” he said.

Saudi Arabia is doubling down on fast-growing sectors such as artificial intelligence, naming it one of its new growth areas, with Al Failh saying the kingdom will be a “key investor” in developing AI applications and large language models. Saudi Arabia would also build data centers “at a scale and at a competitive cost not achieved anywhere else.”

“AI has emerged [in] the last three, four years, and it’s definitely going to define how the future economy of every nation. Those who invest will lead, and those who lag behind, unfortunately, will lose,” he pointed out.

On Monday, AI chip company Groq’s CEO, Jonathan Ross, told CNBC that  for AI infrastructure thanks to its energy surplus. The country could see more than $135 billion in gains by 2030 thanks to AI, according to PwC.

Saudi Arabia’s quarterly budget performance report revealed that total government revenue for the first half of 2025 came in at 565.21 billion Saudi riyals ($150.73 billion), with oil making up 53.4% of the country’s overall revenue, down from 67.97% in the same period in 2019.

In 2024, the country reported a 1.3% rise in full-year GDP, mainly driven by a 4.3% increase in non-oil segments. Oil activity, on the other hand, fell 4.5% year on year.

The country’s sovereign wealth fund — the Public Investment Fund — has acquired stakes in tech giants, video game publishers and football clubs as it uses oil revenues to diversify into other sectors.

PIF has acquired stakes in video-game heavyweight Electronic Arts, establishing the SoftBank Vision Fund with Masayoshi Son’s SoftBank Group Corp in 2017, and a takeover of English Premier League club Newcastle United in 2021.

When asked if declining oil prices were piling pressure on Saudi Arabia’s economy and government revenue, Al Falih said that the country was not scaling back budgets and there were no cuts to public spending.

Oil prices have fallen in 2025, with Brent crude spot prices down 13.4% so far this year, according to FactSet. Saudi Arabia’s oil revenue slid 24% in the first half of 2025 from a year earlier.

The government will continue to address all activities that require government spending, Al Falih said, noting that the PIF has grown sixfold since its creation and that the country was approaching nearly $1 trillion in capital deployed across sectors of strategic interest.

Tourism has also been a key growth area for Saudi Arabia. Ahmed Al-Khateeb, the country’s tourism minister, told CNBC that the sector’s share in GDP had grown to 5% in 2024 from 3% in 2019.

“We are [opening] resorts, new airlines, new airports, and the numbers are growing, and we are focusing on countries and visitors that are coming from outside to experience our great culture,” Al-Khateeb highlighted.

The tourism minister also expressed confidence that the sector could contribute 10% of GDP by 2030, aiming to raise it to 20% eventually.

“This 20% will help Saudi Arabia to diversify the economy and make it more sustainable,” he added.

The dollar was weaker on Tuesday ahead of a slate of central bank meetings that will likely see a rate cut in the U.S. and as investors kept a wary eye on President Donald Trump’s Asia tour, hoping for a trade deal with China.

While early signs of easing trade tensions between the world’s top two economies led to a risk rally on Monday, with the dollar slipping against rivals, investors are apprehensive any real Sino-U.S. deal may offer far less to celebrate.

The spotlight will be on the meeting between Trump and Chinese President Xi Jinping in South Korea on Thursday. “I’ve got a lot of respect for President Xi and I think we’re going to come away with a deal,” Trump told reporters on Air Force One before landing in the Japanese capital, Tokyo.

Chinese officials have so far been circumspect about trade talks with U.S. counterparts and have said little on the potential outcome.

The anticipation has left currency markets fairly muted so far this week. The euro hit a one-week high of $1.1655 in early trading on Tuesday, while sterling last bought $1.3344.

The dollar index, which measures the U.S. currency against six other units, was steady at 98.786 in early Asian hours, having eased 0.15% in the previous session.

“I don’t think financial markets have high expectations that the Trump-Xi meeting will lead to a comprehensive trade deal,” said Carol Kong, currency strategist at Commonwealth Bank of Australia.

Kong, though, said that signs that the two countries have made progress on issues and the prospect of the U.S. lowering tariffs on China are enough to lift sentiment and risk assets.

With a 25-basis-point rate cut from the Federal Reserve long priced in, markets will closely watch for any signs that the central bank may be preparing to wind down its quantitative tightening program.

Focus will also be on whether the central bank and Fed Chair Jerome Powell provide clarity on further rate cuts as the U.S. government shutdown continues, leaving policymakers without economic data. Traders are pricing in another cut in December.

“We do not expect formal guidance about the December meeting, but if Chair Powell is asked, he will likely be comfortable referencing the September dots, which imply a third cut in December,” said David Mericle, chief U.S. economist at Goldman Sachs. The Fed cut rates last month by 25 bps.

“A cut in December is likely because the labour market data, which will be affected by DOGE deferred resignations and the impact of the shutdown on data collection, are unlikely to send a convincing all-clear signal by then.”

The yen was stronger at 152.42 per U.S. dollar ahead of the Bank of Japan meeting later this week where the central bank is expected to stand pat on rates but the focus will be on whether they provide clues on when the next hike will come.

Attention will be on a meeting on Tuesday between Trump and Japan’s new Prime Minister Sanae Takaichi, where the two leaders will discuss trade issues.

Over in Europe, the European Central Bank is all but certain to keep rates on hold again on Thursday as traders waver on whether it will resume easing next year.

The Australian dollar, often seen as a proxy for risk appetite, was 0.11% firmer at $0.6563, a two-week high. The New Zealand dollar inched higher to $0.5778.

“There seems little in the global macro landscape that appears capable of derailing the current melt-up,” said Chris Weston, head of research at Pepperstone.

“With the ongoing government shutdown limiting the risk that would have come from the tier 1 economic data and when Fed rate cuts align with a still-resilient economy and a market skewed towards selling volatility, the outcome has simply been to buy risk.”