Saudi economy shrinks for fourth straight quarter on Opec+ curbs
SAUDI Arabia’s gross domestic product contracted slightly for the fourth quarter in a row as Opec+ production cuts continued to weigh on the economy of the world’s top oil exporter.
The kingdom’s economic output shrank 0.4 per cent on an annual basis during the April-to-June period, according to preliminary data published by the General Authority for Statistics on Wednesday (Jul 31). That was primarily driven by an 8.5 per cent contraction in the oil sector.
The reading was better than the 1.7 per cent contraction recorded during the previous three-month period, as activity in non-oil economy grew by 4.4 per cent, up from 3.4 per cent previously.
Authorities have long focused on the expansion of Saudi Arabia’s non-oil economy that generates jobs for the bulk of the population. But growth is still critical to Crown Prince Mohammed bin Salman’s Vision 2030 plan that will require hundreds of billions of US dollars in new investments.
Overall expansion will likely accelerate as last year’s decision to curb oil production gradually ceases to weigh on GDP growth. On a quarterly basis, economic output was unchanged at 1.4 per cent during the second quarter.
“We expect this to be the last quarter of deeply negative hydrocarbon sector growth” with base effects starting to dissipate, Carla Slim, an economist with Standard Chartered, said before the data release.
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The Organization of Petroleum Exporting Countries and its allies have been withholding supplies for almost two years in a bid to prop up prices. Still, Brent crude averaged around US$83.5 a barrel so far this year – lower than the price Saudi Arabia needs to balance its budget at US$96 per barrel, according to the International Monetary Fund.
Bloomberg Economics estimates the break-even price at US$109 per barrel, once domestic spending by the kingdom’s sovereign wealth fund is taken into account.
“Despite their label, Saudi non-oil sectors depend on oil prices,” according to Ziad Daoud, chief emerging-markets economist at Bloomberg Economics. “With high oil prices, authorities hire more people, raising government services, a non-oil activity.”
The IMF cut its estimate for Saudi GDP growth this year to 1.7 per cent from 2.6 per cent in April. BLOOMBERG
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