Saudi Arabia’s economy suffered its biggest contraction since 2020 during the third quarter, after the kingdom cut oil production to push up prices.
Gross domestic product shrank 4.5 percent in the third quarter compared to a year earlier, driven by a 17 percent drop in the oil economy, according to preliminary data by the General Authority of Statistics. Growth in the non-oil economy also slowed.
That’s the biggest contraction in three years, when the coronavirus pandemic was wreaking havoc across global economies, and the first output drop since the start of 2021.
The world’s biggest crude exporter enacted a unilateral oil production cut in July, putting its output at 9 million barrels a day. The kingdom’s now producing almost 1 million barrels a day below its average for the past decade and seems likely to remain at current output levels until at least the end of this year.
Economic growth in the kingdom reached nearly 9 percent last year, the fastest among the Group of 20 nations, driven by record crude output and Russia’s war on Ukraine’s roiling energy markets. That helped Saudi Arabia’s GDP surpass $1 trillion for the first time.
Brent traded close to $88 per barrel as of 7:40 am in London, down from last year’s average of $100 a barrel.
“The contraction in the oil sector is likely going to be the sharpest in the third quarter,” according to Monica Malik, chief economist at Abu Dhabi Commercial Bank, who expects the Saudi economy to shrink by 0.8 percent this year.
The World Bank is estimating the Saudi economy will shrink by nearly 1 percent in 2023.
Non-oil growth, the main driver of employment and in which Crown Prince Mohammed bin Salman is investing trillions of dollars to diversify the economy, grew 3.6 percent, according to the preliminary data.
On a quarterly basis, non-oil growth rose 0.1 percent, the softest pace of acceleration since the end of 2020. Overall GDP dropped around 4 percent quarter-on-quarter.
“The non-oil data points to a softening in momentum,” said Malik, “though the high government spending backdrop is visible in the third-quarter data and will be supportive.”