Saudi Arabia’s economic recovery all set to strengthen in Hydrogen this year

While successful vaccination campaigns helped the oil-rich kingdom's recovery from the pandemic, the spillovers from the Russia-Ukraine also led to surging oil prices that boosted economic activity in the kingdom as well as a large surplus in the first few months of 2022, according to Deutsche Bank.

All the while, inflation has remained moderate owing to the exchange rate peg and price caps.

"With oil prices trading above $100/bbl and with the latest estimates of breakeven fiscal oil prices hovering around $70 per barrel, we expect the country to record large current account and fiscal surpluses this year, leading to a significant improvement in both the fiscal and external position," Deutsche Bank Economist Samira Kalla said in a report.

Saudi Arabia's Vision 2030 agenda emphasises economic diversification efforts and efforts towards net-zero carbon emissions and the soaring oil prices should help Saudi Arabia to continue with its reform agenda and expand investments for the rest of 2022. The KSA could play a bigger role internationally, given its current spare capacity and cheap production cost.

The country’s available spare production capacity is providing the authorities with strong political leverage, which it might be able to utilize to improve the relationship with its allies, the report also noted.

Downside risks stem from a potential decline in global demand with the collapse in oil prices. The emergence of new variants could slow down the country's progress, Deutsche Bank said in its report.