Saudi in ‘Technical Recession’, Says New Report
Saudi Arabia’s economy faces a grim outlook as preliminary GDP figures reveal it has entered a “technical recession,” according to a report by London-based Capital Economics. This downturn is due to reductions in oil production despite the non-oil economy’s resilience.
The decision by Saudi Arabia to voluntarily decrease its daily oil output by 1 million barrels a day has been a major factor in the current economic situation, and this reduction is expected to continue following the latest OPEC+ meeting. As a result, the economy is likely to experience a contraction for the entire year.
According to statistics, the second quarter witnessed a decline of 0.1 per cent in GDP quarter-on-quarter, following a 1.4 per cent drop in the first quarter. In addition, year-on-year growth slowed significantly from 3.8 per cent in Q1 to 1.1 per cent in Q2.
The oil sector has been hit the hardest, contracting by 1.4 per cent quarter-on-quarter due to OPEC+ oil production cuts. Despite the non-oil sector showing promising growth of nearly 2 per cent quarterly, the decline in the oil GDP has overshadowed these improvements.
To address the situation, Saudi Arabia has adopted even stricter cuts to its oil production in the third quarter, with an additional voluntary reduction of one million barrels per day in July and August.
The report predicts that this will offset any strength in the non-oil sector and lead to a 3 per cent quarter-on-quarter contraction in GDP in the third quarter. There is a growing possibility that the upcoming OPEC+ Joint Ministerial Monitoring Committee meeting will result in the kingdom extending this voluntary cut until at least the end of September.
If this happens, the economy is expected to shrink by around 0.5 per cent over the entirety of 2023, marking the worst GDP performance in over two decades, excluding the impact of the global financial crisis and the pandemic.
In a recent update, the International Monetary Fund (IMF) has downgraded its GDP growth projection for the world’s leading oil exporter, citing the lingering impact of extended oil production cuts. The IMF now expects the country’s GDP growth for 2023 to reach 1.9 per cent, reflecting the challenges posed by the sustained reduction in oil output.
To bolster the oil market further, Saudi Arabia is reportedly planning to prolong its voluntary oil output reduction of 1 million barrels per day for an additional month, encompassing September, according to a report by Reuters.
This move aims to provide crucial support to the global oil market, which has been experiencing fluctuations in prices. As a result of these developments, oil prices surged significantly on Monday, marking the most substantial monthly gain in over a year.
