SAMA governor warns prolonged regional conflict threatens global growth, highlights Saudi economic resilience

ISTANBUL — Saudi Central Bank (SAMA) Governor Ayman Al-Sayari warned that a prolonged regional conflict could intensify global inflationary pressures, weaken economic growth and disrupt supply chains, even as Saudi Arabia continues to demonstrate economic and financial resilience.Speaking at the Istanbul Economic Forum on Thursday, Al-Sayari said the global economy had shown considerable resilience despite successive geopolitical shocks, but warned that continued conflict in the region was complicating the outlook for growth and inflation.He said global economic growth was projected at approximately 3% in 2026, following repeated downward revisions, with a recovery expected in 2027. Global inflation, meanwhile, was forecast at around 4.7%, raising concerns about renewed price pressures after a period of easing inflation since 2024.Al-Sayari cautioned that supply-side disruptions could simultaneously weaken economic activity and drive prices higher, creating challenges for central banks seeking to balance inflation control with economic growth.He warned that prolonged geopolitical instability could also undermine investor confidence, increase risk premiums on financial assets and tighten global financing conditions, particularly against a backdrop of elevated global debt.Turning to Saudi Arabia, Al-Sayari said the Kingdom had maintained considerable economic resilience despite its proximity to regional tensions, supported by strong foreign reserves and assets, long-term infrastructure investments and economic diversification under Vision 2030.He highlighted the importance of investments in energy infrastructure, particularly the East-West Pipeline, in maintaining oil exports amid disruptions affecting the Strait of Hormuz and the Red Sea.The pipeline has helped Saudi Arabia continue meeting customer demand, although oil supplies remain below pre-conflict levels, he said.Al-Sayari said the East-West Pipeline has a capacity of around 5.8 million barrels per day, while another transportation route developed in cooperation with regional partners provides an additional capacity of between 1 million and 2 million barrels per day.He said Saudi Aramco had also prepared for potential disruptions by establishing oil reserves in different parts of the world, allowing it to continue supplying customers during the conflict.The governor stressed that recent developments demonstrated the importance of investing in critical infrastructure during periods of stability to strengthen the economy's capacity to absorb unexpected shocks.Al-Sayari said the Saudi economy recorded negative growth for two consecutive quarters in 2026, largely reflecting weakness in the oil sector.However, non-oil economic activity continued to expand, growing by approximately 2% in the first quarter and 1% in the second quarter.He attributed the resilience of domestic demand partly to population growth and record-low unemployment among Saudi nationals, alongside the progress achieved through the Kingdom's economic diversification program.Inflation in Saudi Arabia remained moderate at 1.8% as of mid-August 2026, supported by government measures, including domestic fuel price caps, and the Saudi riyal's peg to the US dollar.Al-Sayari said the currency peg had helped limit imported inflation, given the structure of the Saudi economy.The SAMA governor said Saudi banks had maintained their financial resilience since the beginning of the regional conflict, supported by strong liquidity and capital positions.According to June 2026 data, the banking sector's liquidity coverage ratio stood at 170%, its capital adequacy ratio at 20.9%, and its net stable funding ratio at 114.6%.He said Saudi banks continued to benefit from the Kingdom's A+ sovereign credit rating, which supported their access to international financing markets despite rising risk premiums.Domestic liabilities accounted for 87.1% of total liabilities at Saudi banks, significantly limiting their exposure to capital outflow risks.Al-Sayari added that banks remained capable of expanding lending and financing domestic projects, reflecting the stability of the Kingdom's financial system.Addressing monetary policy challenges, Al-Sayari said geopolitical shocks did not necessarily require fundamental changes to existing policy frameworks but reinforced the importance of preparedness, flexibility and effective crisis management.He urged central banks to assess whether inflationary pressures arising from supply disruptions were temporary or risked becoming persistent through second-round effects.He also called for operational readiness in liquidity management and crisis response mechanisms, particularly during periods of heightened market volatility and pressure on external financing.Al-Sayari emphasized the importance of international coordination and timely information sharing to address the cross-border consequences of geopolitical instability.He said that building economic and financial resilience required establishing adequate buffers before crises emerge, identifying vulnerabilities early and ensuring financial systems can withstand unexpected shocks.