Saudi Arabia’s economy navigates technical recession amid oil cuts as cast by preliminary GDP figures recently revealed.
The recession can be attributed to reductions in oil production despite the commendable resilience of the non-oil economy.
Central to this economic challenge is Saudi Arabia’s voluntary decision to curtail its daily oil output by a staggering 1 million barrels per day. This strategic move, influenced by recent OPEC+ deliberations, is poised to continue exerting pressure, leading to a year-long contraction in the nation’s economy.
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The second quarter of this year saw a 0.1 percent decline in GDP quarter-on-quarter, following a substantial 1.4 percent drop in the first quarter. Moreover, year-on-year growth underwent a marked deceleration from 3.8 percent in Q1 to 1.1 percent in Q2.
The oil sector bore the brunt of this downturn, experiencing a 1.4 percent contraction quarter-on-quarter, an outcome of OPEC+ oil production cut measures.
Notwithstanding the promising nearly 2 percent quarterly growth in the non-oil sector, this positive momentum has been eclipsed by the dwindling oil GDP.
Seeking to mitigate the impact, Saudi Arabia has embarked on more stringent oil production cuts in the third quarter, extending its voluntary reduction by an additional 1 million barrels per day in July and August.
Projections from the report suggest that this step might counterbalance any non-oil sector strength, translating into a 3 percent quarter-on-quarter GDP contraction in the third quarter.
Amidst these developments, the imminent OPEC+ Joint Ministerial Monitoring Committee meeting looms, raising the likelihood of extending this voluntary cut until the end of September.
Should this materialize, it is anticipated that the economy could shrink by approximately 0.5 percent over the entirety of 2023, marking the most significant GDP downturn in more than two decades—excluding the contexts of the global financial crisis and the pandemic.
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Saudi Arabia’s GDP Growth Projections Diminish: IMF’s Outlook
In a recent update, the International Monetary Fund (IMF) has tempered its GDP growth projection for Saudi Arabia, an oil-exporting heavyweight, citing the lingering effects of prolonged oil production cuts.
The IMF now envisions the country’s GDP growth for 2023 to reach a modest 1.9 percent, a testament to the challenges posed by the sustained contraction in oil output. Adding to this, Saudi Arabia is reportedly contemplating an extension of its voluntary oil output reduction of 1 million barrels per day for an extra month, encompassing September—an initiative aimed at providing pivotal support to the global oil market, which has been grappling with fluctuations in prices.
As a ripple effect, these developments have galvanized oil prices, triggering a significant surge, marking the most substantial monthly gain in over a year.
Source: Arabian Business