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Saudi Arabia’s GDP falls as revenue tightens

Weaker consumer spending has led retailers to cutting prices in attempt to win customers Woman shopping coffee window Getty Images/Unsplash+
Weaker consumer spending has led to retailers cutting prices in attempt to win customers
  • Q2 GDP down 0.4%
  • Non-oil activity slows
  • Consumer spending weakens

Saudi Arabia’s economy contracted in the second quarter of 2024 as non-oil activity slowed amid retail pricecutting.

However, the end of oil output cuts next year could give the country’s coffers a much-needed boost. 

The General Authority for Statistics said in its latest report this week that real GDP fell 0.4 percent compared to the year before as oil activities decreased by 8.5 percent over the year due to ongoing Opec+ production cuts. 

Non-oil activity was up 4.4 percent on an annual basis but it was only a 1.4 percent increase from the previous quarter, reflecting International Monetary Fund observations of the sector slowing. 



Capital Economics, a London-based financial consultancy, also noted in a report this week that “activity in the Saudi non-oil sector has cooled off in recent months”, tracking the dip in oil activity. 

But it also pointed to weaker consumer spending which has seen retailers engage in price cutting to win customers. 

“Saudi Arabia’s oil output declined over the course of Q2 and is likely to have been a major drag on GDP growth. This should fade over the coming quarters,” James Swanston of Capital Economics said, forecasting a sharp rise in oil output from around 9 million barrels per day to near the 11 million mark over the coming two years. 

In June Opec+ extended part of its output cuts into 2025 as producers wrestle with slipping prices and try to secure markets, but the cuts are to be phased out. 

They have had an impact on growth in economies heavily reliant on oil revenues. This month the IMF lowered its forecast for economic growth in Saudi Arabia by almost an entire percentage point to 1.7 percent due to cuts in oil production.

Lower oil prices have forced Saudi Arabia to rethink some of the giga-projects at the heart of Crown Prince Mohammed bin Salman’s ambitious Vision 2030 programme to wean the country off a dependence on hydrocarbons. 

The IMF says Saudi Arabia needs oil prices to be around $96 per barrel to cover budgeted spending. Brent crude is currently trading at around $79 per barrel, well below that breakeven price. 

The giga-projects, managed by the Public Investment Fund, have also been impacted by lower-than-expected foreign direct investment, which at $12.3 billion in 2023 is well below the $100 billion a year that has been set as a target by 2030. 

“The Public Investment Fund is increasingly being leant on to offset weak FDI, resulting in a slowdown in its investments abroad,” Swanston said. 

State entities are also raising debt. At 26.2 percent of GDP at the end of 2023, public debt remains low. The IMF says it could rise to 35 percent by 2029 but the rush of state entities to raise debt this year has some analysts predicting it could hit that number earlier.

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