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Analysts predict growth despite Saudi GDP fall

By Andrew Hammond
Local vendors at the Souq Al Zel in Riyadh. The Saudi economy will come out of negative year-on-year growth this year "almost certainly" said one analyst Alamy/Stephen Lioy via Reuters
Local vendors at the Souq Al Zel in Riyadh. The Saudi economy will come out of negative year-on-year growth this year "almost certainly" said one analyst
  • GDP down on Q2 2023
  • But has risen since Q1 this year
  • Every sector expands at ‘solid pace’

Saudi Arabia’s year-on-year GDP fell again in the second quarter, according to adjusted government figures released this week, but analysts have said the quarterly increase shows the economy is nearing the end of its negative run. 

GDP was down 0.3 percent year on year in the second quarter, but has risen by 1.4 percent since the previous quarter.

Opec+ oil producers instituted a policy of output cuts in 2022 in an effort to prop up prices as global demand began to wane. 

A relaxation of the policy had been planned for this October, but has been put off for at least two months after a further drop in oil prices. 

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The Saudi government is forecasting three years of budget deficits, although the International Monetary Fund is still predicting GDP of 4.7 percent in 2025. 

The General Authority for Statistics pointed out that the 0.3 percent year-on-year contraction was an improvement on the first quarter’s 1.7 percent drop and the 4.3 percent fall in the fourth quarter of 2023. 

“The better sign for the economy is that GDP on a quarter-on-quarter basis has expanded by 1.4 percent in Q1 and Q2, which is a solid pace and the breakdown showed growth on this basis in every sector in Q2,” said James Swanston of Capital Economics.

“The Saudi economy will come out of negative year-on-year growth almost certainly this quarter,” he added. 

Non-oil activities, which the IMF has described as “robust” under the Vision 2030 strategy to diversify the economy, recorded their highest year-on-year growth since the second quarter of 2023 – 4.9 percent

Analysts hailed the consistent rise in non-oil GDP but highlighted that oil and gas still account for 23 percent of economic activity, or 29 percent if refining activity is included.  

“Oil GDP at 23 percent is not very low when there is a production cut. Even during the heyday of oil – say, around 10 years back – it used to be close to 36 to 40 percent,” said Chiro Ghosh, vice president of financial institutions at Sico bank in Bahrain. 

But progress could be measured in oil’s share of total revenue falling to 63 percent from 90 percent before the reforms, Ghosh said. 

Figures released last month showed revenue from crude oil and refined product sales were down to $17.7 billion in June – a fall of more than 9 percent year on year and 12 percent month on month.

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