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Saudi Arabia’s economy, which contracted 4.5% during Q3 2023, pivoting from a 1.2% expansion in the previous quarter, is expected to see slower growth during Q4 as the kingdom maintains the oil production cut through year-end.
Emirates NBD in a note on Tuesday maintained the growth forecast for headline GDP growth of -0.5% in 2023, reflecting the drag from the oil & gas sector.
The world’s biggest crude exporter initiated a one million barrels per day (bpd) cut to oil production in July and has since maintained output steady at nine million bpd until at least the end of this year.
Growth in the non-oil activity, which is being positioned to drive the kingdom's diversification from oil revenue, also weakened in the quarter, growing at 0.1% on a quarterly basis, according to government data issued on Tuesday.
"We expect that ongoing structural reforms and heavy investment into Vision 2030 projects will maintain a robust pace of growth in the non-oil economy over the coming quarters and years," senior economist Daniel Richards said.
He said crude oil production is set to be 18.9% lower than it was in Q4 last year.
The GDP contraction for Q3 is the steepest seen since the height of the pandemic, said Capital Economics (CE). The London-based consultancy has forecast a 1.3% contraction for Saudi Arabia for the whole of 2023, making it "the worst performer in the Gulf this year".
However, CE's economist Jason Tuvey said a recovery will take hold in the coming quarters with GDP growth to hit 0.8% in 2024. The kingdom's pre-budget statement for 2024 suggested that the government will maintain a loose fiscal stance, helped by high oil prices, which will support the non-oil economy, he added.
"And the drag from oil output cuts will ease, particularly if we’re right in expecting output to be raised from mid-2024. We have pencilled in GDP growth of 0.8% for next year, which is weaker than the consensus forecast, followed by 6.3% in 2025."
(Reporting by Brinda Darasha; editing by Seban Scaria)
