Saudi Arabia Economic Forecast

Year-on-year GDP growth for Q2 was revised up by 0.1 percentage points to 1.2% in a recently released second reading. The revised figure was still the weakest in more than a year, weighed on by both cuts to crude production agreed with OPEC and those taken unilaterally. Turning to Q3, the economy is projected to contract slightly yoy. The unilateral output cut in place since July—due to last until the end of the year—led crude production to fall 17% yoy in July–August to one of the lowest levels in the past decade. More positively, the non-hydrocarbons sector likely expanded robustly, fueled by government investment bolstered by higher oil prices due to production cuts; non-oil private business activity grew at some of the fastest rates since the end of the pandemic in July and August.

Inflation eased to 2.0% in August (July: 2.3%), a 16-month low. Inflation should remain tepid for the rest of 2023 and into 2024, limited by government energy subsidies—which have cost USD 7,000 per person since their introduction in 2021, according to the IMF. Stronger-than-expected domestic demand is an upside risk.