Saudi GDP shrinks following oil output cuts

Reuters

• Growth down 4.5% in Q3
• Oil activity down 17%
• Output cuts aim to keep prices high

Real GDP growth in Saudi Arabia contracted by 4.5 percent in the third quarter, as ongoing Opec+ oil output cuts affect the broader economy.

Government data released this week showed oil activities decreased by 17.3 percent in the third quarter from a year earlier. However the General Authority for Statistics said there was an expansion in non-oil growth of 3.6 percent and in government activities of 1.9 percent. 

The government has said it expects GDP growth to slow sharply in 2023 to 0.03 percent, with a budget deficit of 2 percent of GDP. 

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Analysts and ratings agencies have been revising their assessments in the light of oil production cuts that Saudi Arabia, the world’s top oil exporter, and Russia pushed through at Opec+ to raise oil prices during a period of lower global demand. 

Earlier this month the World Bank forecast the Saudi economy would contract by 0.9 percent this year with a budget deficit of 2 percent of GDP, in what it described as an “abrupt decrease” in economic activity. 

The Saudi government has bet on oil output cuts keeping prices high enough for a gradual return over coming years to GDP levels close to the 8.7 percent of 2022. That was when it had its first budget surplus in nearly a decade after hitting a low in 2020 during the Covid-19 pandemic. 

Diversification plans

The Public Investment Fund wants to use the extra oil receipts to fund the mega-projects at the heart of the government’s project to diversify the economy away from oil. 

The total value of real estate and infrastructure projects has been valued at $1.25 trillion, in addition to $250 billion of commissioned projects. 

The giga-projects include the city Neom, the Red Sea Project and Amaala tourist resorts, education and sports city Qiddiyya.  

The entertainment district Seven and the Roshn and Jeddah Central housing projects make up the others, as well as five economic zones and other infrastructure schemes.