Economy Saudi 2023 growth forecast cut to 1.9% by IMF By Melissa Hancock July 26, 2023 Reuters/Yuri Gripas Georgieva Oil production cuts are weighing on Saudi GDP growth Non-oil GDP growth forecast at 5.9% But overall GDP growth could stagnate The International Monetary Fund (IMF) has cut Saudi’s 2023 GDP forecast to 1.9 percent, as the kingdom’s oil production cuts weigh on its economic performance. Industry experts do not see this impacting the kingdom’s investment drive and the development of its massive slate of giga-projects. It may lead to further debt issuance to finance any shortfalls, however. “The downgrade for Saudi Arabia for 2023 reflects a policy of production cuts announced in April and June in line with an agreement through Opec+,” the IMF noted in its latest World Economic Outlook update released on Tuesday. Oil cuts take $11bn bite out of Saudi exports Saudi exports fall by 25% in April on lower oil sales Aramco forecasts strong global oil market in 2023 It marks the third growth downgrade by the IMF this year; in June it revised Saudi’s growth forecast to 2.1 percent, after increasing it in May to 3.1 percent, from 2.6 percent in January. Oil prices remain subdued as fears of a global economic slowdown have overshadowed Saudi’s tighter crude supply following extended output cuts. Opec+ – the Organization of the Petroleum Exporting Countries plus allies led by Russia – at its most recent meeting last month agreed to limit supply into next year, while Saudi Arabia pledged to extend its voluntary production cut into August. “Actually, we are surprised that the IMF downgrade was not deeper,” James Reeve, chief economist at Riyadh-based Jadwa Investment, told AGBI. “We assume that the kingdom’s oil production cuts will be rolled over for the rest of 2023.” Reeve said this means that real oil GDP will contract by around 7.5 percent according to Jadwa’s estimates. Saudi Arabia’s decision to scale back oil production cut the kingdom’s total exports in the last year by $11 billion, according to data published on Tuesday by the General Authority for Statistics. Reeve noted that the domestic non-oil economy is “very buoyant indeed”, which has led Jadwa to raise its forecast for real non-oil GDP growth to 5.9 percent for the year. “We are struggling to get overall real GDP growth of more than 0.5 percent this year. It may be that the Fund has assumed that the oil production cuts will only apply until the end of July, and therefore its forecast is higher than ours.” Potential for GDP stagnation James Swanston, Middle East & North Africa economist at London-based Capital Economics, also said it was “not surprising” to see Saudi Arabia’s GDP growth forecast for 2023 downgraded. “The voluntary one million barrels per day extra oil output cut on top of Opec+ quotas will weigh heavily on GDP. If the kingdom opts to roll this over beyond August, it would present a further downgrade,” Swanston told AGBI. Capital Economics expects the Saudi economy will stagnate this year – it is forecasting GDP growth of 0.0 percent. To date, the non-oil economy has been mostly insulated from the impact of Saudi’s prolonged oil production cuts. In its latest outlook, the IMF noted that private investment, including from “giga-project” implementation, continues to support strong non-oil GDP growth. No material impact Reeve said he does not think that the reduction in the kingdom’s GDP growth will impact the kingdom’s massive investment drive and efforts to diversify the economy. “I don’t think it will have any material impact,” he said. “In the old days, a deterioration in the oil profile would have led to the government slamming on the brakes in terms of capex. But now, with the PIF’s balance sheet in play, this is not going to happen.” He did not rule out the possibility of the kingdom borrowing more money. “The banking sector is bumping up against the limits of what it can provide to the domestic economy. I think that both the central government and the PIF will borrow more. They have plenty of room to do so.” Swanston pointed out that Saudi Arabia is already the largest foreign dollar bond issuer among major emerging markets in 2023. “They want to maintain the current fiscal stance. This could see them issue further debt to finance the shortfalls,” he said.