Saudi Arabia's gross domestic product contracted again in the second quarter compared to year-ago levels, pushed down by an 8.5% dip in oil activities as the Kingdom is cutting oil production as part of the OPEC+ agreement and additional voluntary output curbs.
The Saudi economy shrank by 0.4% in the second quarter versus the second quarter of 2023, the flash estimate by the General Authority for Statistics of Saudi Arabia showed on Wednesday.
The second quarter saw the fourth consecutive quarter of contraction of Saudi GDP as the world's biggest crude oil exporter is cutting output by around 1.5 million barrels per day (bpd), including a 1-million-bpd voluntary output reduction.
The primary driver of the shrinking economy in Q2 2024 were oil activities, which dipped by 8.5% year-over-year, while non-oil activities increased by 4.4%, and government activities rose by 3.6% on an annual basis, the Saudi Statistics Authority said.
Earlier this month, the International Monetary Fund (IMF) downgraded its growth forecast for the Saudi economy due to the ongoing oil production cuts by the OPEC+ group.
The IMF now sees 2024 economic growth in Saudi Arabia clocking in at just 1.7%, nearly a percentage point lower than its earlier projection of 2.6%.
The effects of the cuts are expected to spill over into the coming year, with the IMF projecting GDP growth of 4.7% in 2025, a downward revision of 1.3 percentage points from April.
Last year, the Saudi economy shrank by 0.8%, dragged down by the oil production cuts.
Despite the fact that Saudi Arabia has recently managed to reduce its economy's dependence on oil, crude production and exports continue to account for the majority of government income.
In the latest international trade data, the Saudi statistics authority said that the percentage of oil exports out of total exports was at 72.4% in May 2024, down from 73.0% in May 2023.
By Tsvetana Paraskova for Oilprice.com
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Comments
So when the oil revenues decline as a result of lower oil prices or a reduction in production and therefore exports, Saudi economic activities decline too with budget deficit widening, the government being forced to borrow and the economy slowing down or even shrinking in some quarters.
Saudi oil production is continuing to decline because of aging, fast-depleting giant oilfields discovered 75 years ago and being kept in production by the injection of billions of gallons of water.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert