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28 March 2024

Saudi GDP growth up despite lower oil output

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By Staff

Saudi Arabia’s economy picked up in the second quarter of 2013 and growth is expected to accelerate in the third quarter despite lower oil production by the world’s dominant crude exporter, according to a key Saudi investment firm.

Citing government data, the Riyadh-based Jadwa Investments said real GDP in the second quarter grew by 2.7 percent year-on-year compared with 2.1 percent in the first quarter and 5.5 percent in the second quarter last year.

It said that while this reading marks the second lowest quarterly growth since the first quarter of 2011, it is mainly due to falling oil output as non-oil growth picked up to 4.5 percent from 4.4 percent for both previous quarter and the same period last year.

In terms of contribution to overall growth, the private non-oil sector was the main growth driver in the second quarter contributing 2.4 percentage point, the report showed.

The government contribution accelerated to 1.1 ppt compared with 0.6ppt in second quarter last year, it said, adding that the oil sector contribution was -0.8ppt owing to lower crude production by the Gulf Kingdom.

“In line with our forecasts, the oil sector was the main drag on overall real GDP in the second quarter. At -3.7 percent year-on-year, the oil sector registered the weakest growth among all sectors of the economy, though the level of contraction slowed compared with -6.3 percent in the first quarter,” Jadwa said.

“This was heavily influenced by the move in oil production, which contracted by 4.7 percent year-on-year in the second quarter. As oil production gradually picks-up during the summer months owing to rising domestic demand as well increasing external demand on Saudi crude recently, the negative effect of oil reduction on overall GDP growth will decline in the coming quarters.”

Excluding the oil sector, growth ticked up to 4.5 percent from 4.4 percent in the first quarter, according to the report, which showed that private sector growth slightly slowed to around 4.2 percent year-on-year, its lowest during the period which data is available, from about 4.3 percent in the first quarter.

The report said slower growth reflects both normalization of activity as the impact of the 2011 fiscal stimulus gradually fades away and as a result of introducing new and stricter labor market regulation.

Growth of non-oil public sector, however, accelerated to 5.5 percent year-on-year, it said, noting that most of this growth was sourced from higher government services which accelerated to 6.4 percent year-on-year.

“Elevated demand on government services is expected to maintain a firm public sector growth over the next few quarters which will also be translated into higher non-oil revenues for the government,” Jadwa said.

“As for overall GDP, we expect year-on-year growth will improve in the third quarter. While the negative impact of changes in labor market regulation on private sector activity is likely to carry-over into the third quarter as we approach the end of the grace period in early November, both government spending and stabilizing oil output will balance overall economic growth. As the growth in the oil production picks up in the coming months, the negative contribution to real GDP growth from the oil sector is expected to fade away.”