Saudi Arabia’s economy has experienced its fourth consecutive quarterly contraction due to continued declines in the oil sector.
According to preliminary data released by the General Authority for Statistics on Wednesday, the kingdom’s gross domestic product (GDP) shrank by 0.4% on an annual basis during the April-June period.
This contraction, while slightly better than the previous quarter’s 1.7% decline, underscores the persistent challenges facing the world’s top oil exporter.
The oil sector, which remains a crucial component of Saudi Arabia’s economic framework, contracted by a significant 8.5%.
This decline marks a continuation of the negative trend driven by ongoing OPEC+ production cuts aimed at stabilizing global oil prices.
In contrast, Saudi Arabia’s non-oil economy demonstrated resilience, growing by 4.4% during the same period, an improvement from the previous quarter’s 3.4% growth.
This robust performance in the non-oil sector aligns with the government’s long-term strategy to diversify the economy and reduce its dependence on oil revenue.
The Vision 2030 plan, spearheaded by Crown Prince Mohammed bin Salman, emphasizes the expansion of the non-oil economy to generate employment opportunities for the Saudi population.
However, the overall economic growth remains vital to the success of this ambitious plan, which requires substantial investments.
Economists predict that the overall economic expansion is likely to accelerate as the impact of oil production cuts diminishes.
On a quarterly basis, Saudi Arabia’s economic output remained steady at 1.4% during the second quarter.
Carla Slim, an economist with Standard Chartered Plc, expressed optimism regarding the future. “We expect this to be the last quarter of deeply negative hydrocarbon sector growth,” Slim said before the data release, noting that the base effects are starting to dissipate.
The Organization of Petroleum Exporting Countries (OPEC) and its allies, including Saudi Arabia, have been limiting oil supplies for almost two years in an effort to support prices.
Despite these efforts, Brent crude has averaged around $83.5 per barrel this year, which is below the $96 per barrel price that Saudi Arabia needs to balance its budget, according to the International Monetary Fund (IMF).
Bloomberg Economics estimates that when domestic spending by the kingdom’s sovereign wealth fund is considered, the break-even price rises to $109 per barrel.
The IMF recently revised its estimate for Saudi GDP growth this year, lowering it to 1.7% from the 2.6% forecasted in April.
This adjustment reflects the ongoing difficulties in the oil sector and the broader economic challenges facing the kingdom.
Ziad Daoud, chief emerging-markets economist at Bloomberg Economics, highlighted the interconnectedness of Saudi Arabia’s non-oil sectors and oil prices.
“Despite their label, Saudi non-oil sectors depend on oil prices,” Daoud explained. “With high oil prices, authorities hire more people, raising government services, a non-oil activity.”
As Saudi Arabia continues to navigate the complexities of a global oil market and strives to achieve its Vision 2030 objectives, the country’s economic landscape remains in a delicate balance.
The resilience of the non-oil sector provides a glimmer of hope, but the road to sustained growth and diversification remains challenging.
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