Gross domestic product expanded an annual 1.7% in the first quarter - down from 3.6% in the previous three month
Saudi Arabia’s economy is feeling the sting of oil output cuts just as it looks to extend the OPEC+ agreement at current production levels for the rest of this year and possibly beyond.
Gross domestic product expanded an annual 1.7% in the first quarter, the kingdom’s statistics authority said on Sunday, down from 3.6% in the previous three months. Growth in the oil sector stood at 1%, compared with 6% in the fourth quarter of 2018.
“The deceleration was expected with the OPEC production cut deal," said Monica Malik, chief economist at Abu Dhabi Commercial Bank. She predicts a contraction in the oil sector from the second quarter onward.
Saudi Arabia has led efforts to stabilise the oil market by ending years of animosity with Russia in 2016 and joining forces to prop up prices.
Days before the OPEC+ gathering in Vienna, Russian President Vladimir Putin said he’d struck a deal with Saudi Crown Prince Mohammed Bin Salman to extend the agreement.
When it comes to the economy, the world’s largest crude exporter is paying the price despite efforts by Prince Mohammed to reduce reliance on oil through a sweeping plan dubbed “Vision 2030.” Analysts surveyed by Bloomberg expect the Saudi economy to expand 1.7% this year, compared with 2.2% in 2018.
Still, the non-oil GDP fared better than the oil economy, with an annual gain of 2.1%. Growth in the private sector - a key measure of the economy’s health - reached 2.3%, the highest level since 2015.
To show any improved non-oil momentum, Saudi Arabia needs to raise government spending or make progress on the investment programme, according to Malik.
“It’s still an uninspiring and subdued rate” that’s largely due to “an improvement in the fiscal backdrop, rather than signs of private sector growth by itself,” she said.
One positive surprise was the increase in construction after years of struggling, said Mohamed Abu Basha, head of macroeconomic analysis at investment bank EFG-Hermes in Cairo.
The turnaround could be a result of progress being made on mega-projects like Prince Mohammed’s futuristic $500 billion city on the Red Sea, Neom.