Skip to content Skip to Search
Skip navigation

Saudi GDP growth slows as oil activity to ‘go into reverse’

A Sabic plant in Jubail, Saudi Arabia. Petrochemicals growth stood at 2.3% in Q1 Sabic
A Sabic plant in Jubail, Saudi Arabia. Petrochemicals growth stood at 2.3% in Q1
  • Real GDP grew by 3.8% in Q1. A year earlier, growth stood at 10%
  • Quarterly oil sector growth was 1.4% – down from 20.2% in Q1 2022
  • Non-oil output, driven by manufacturing, grew by 5.3% in Q1

Slowing oil activity is hampering real GDP growth for Saudi Arabia, the world’s largest exporter of crude, official figures show.

Real GDP grew by 3.8 percent year on year in the first quarter of 2023, according to Riyadh’s General Authority for Statistics. This is down from 5.5 percent in the previous quarter and 10 percent in Q1 2022. 

An analysis by Jadwa Investment highlighted that oil was the main drag on GDP. Growth in oil activities stood at just 1.4 percent in Q1, down from 6.1 percent in the previous quarter and 20.2 percent in the first quarter of 2022. 

James Reeve, chief economist at Jadwa, wrote in a research note: “Oil activities are set to slow further, and indeed go into reverse given the kingdom’s commitment to additional cuts in production as part of Opec agreements.”

Barring an unexpected recovery in output in Q4, total crude output is likely to be 8-10 percent lower in 2023 compared with 2022, he added.

Figures for the second quarter will include a 500,000 barrels per day (bpd) cut in output, which came into effect in May and is expected to remain in place for the rest of the year. 

A further 1 million bpd cut started this month. On Monday this was extended to the end of August. Oil output for the third quarter is likely to be down by at least 15 percent year on year. 

Government spending growth also seems likely to moderate in the quarters ahead, said Reeve.

However, Saudi Aramco CEO Amin Nasser said last week that global oil market fundamentals were expected to remain sound for the rest of the year, underpinned by healthy demand in China and India.

Last month the International Monetary Fund said Saudi Arabia’s real GDP growth would slow to 2.1 percent in 2023 following the Opec+ production cuts announced in the spring.

In contrast to the subdued oil market, non-oil output grew by 5.3 percent year on year in Q1 – the third quarter running that this mark was reached. 

Jadwa said the biggest non-oil growth driver was manufacturing, which is dominated by petrochemicals and oil refining. Both activities had a difficult Q1, however.

Aramco's Shaybah pipeline. Saudi's total crude output this year is likely to be 8-10% lower than in 2022Saudi Aramco
Aramco’s Shaybah pipeline. Saudi’s total crude output this year is likely to be 8-10% lower than in 2022

“Refining struggled in the first quarter, falling by 7.6 percent, which is probably a reflection of the authorities’ efforts to push more crude out to export markets at the expense of domestic refining activity, along with the impact of some weakness in regional refining demand,” said Reeve. 

Petrochemicals output growth slowed to 2.3 percent in Q1 as chemicals stocks in China – Saudi’s main market – neared capacity. 

“Chinese demand is expected to pick up again as its stocks are drawn down, giving support to a sector that suffered more than most during China’s lockdowns,” added Reeve. 

This is borne out by data for April, which shows that overall manufacturing output increased by 10.5 percent. 

Wholesale and retail trade is the next largest sector and expanded by 7.5 percent in Q1. It now accounts for just under 10 percent of overall GDP. 

Reeve said demand was being propelled by women joining the workforce, while on the supply side there is ever-increasing scope to spend new incomes on entertainment and domestic tourism. 

After a challenging couple of years – mainly related to the pandemic – the construction sector appears to have rebounded “quite forcefully”, Jadwa’s research note said. It grew by 5.5 percent year on year in the first quarter.

“The sector has obviously benefited from the surge in public sector investment, most notably around giga-projects, though housing construction has also been a significant tailwind,” said Reeve.

“There are some constraints around labour and other inputs, though this is hardly surprising given the pick-up in pace of project roll-out as interim Vision 2030 deadlines loom.”

Latest articles

PIF's Starbucks shareholdings were cut almost by half from 6.3 million shares to 3.8 million

PIF slashes Starbucks stake as it cuts US stocks by $15bn

Saudi Arabia’s Public Investment Fund (PIF) has slashed its US equity holdings by 42 percent to $20.6 billion, including its stake in Starbucks, the global coffee chain that has suffered calls for a boycott as a result of the Gaza conflict. The latest US government data highlights funding challenges facing the Saudi giga-projects.  The filing […]

Tunisia olives

Soaring olive oil exports help Tunisia balance books

Tunisia’s soaring olive oil exports have almost doubled to close to $1 billion in just five months, helping it claw back its current account deficit.   However the increased revenues merely “paint over the cracks” and the country is still probably heading towards a sovereign default, according to an economic expert. Tunisia’s current account deficit narrowed […]

Saudi aluminium producer Talco is offering 12 million shares

Aluminium producer Talco announces Saudi IPO

Aluminium producer Al Taiseer Group Talco Industrial Company (Talco) is the latest entity to reveal initial public offering (IPO) plans in Saudi Arabia. The Riyadh-based company, which was set up in 2009, is offering 12 million shares, a 30 percent stake, on the Saudi Exchange (Tadawul) at a nominal value of SAR10 ($2.67) per share. […]

One of the four restaurants in the Palazzo Versace Dubai hotel, which is listed on the Emirates Auction website

Palazzo Versace hotel sale aims to ride Dubai tourism wave

Owners of Dubai’s ultra-luxurious Palazzo Versace hotel are looking to capitalise on the emirate’s tourism boom before it peaks, offering it for sale at nearly AED1.4 billion ($380 million). A source familiar with the asset told AGBI the hotel is being “readvertised” as it has not found a buyer willing to meet its price tag […]