Saudi Arabia Economic Outlook
Year-on-year GDP growth slowed for the fourth consecutive quarter in Q2 to 1.1% (Q1: +3.8% yoy). Cuts agreed with OPEC and those taken unilaterally brought oil production in the quarter to one of the lowest levels in the past decade, weighing on the hydrocarbons sector. More positively, the private non-hydrocarbons sector grew slightly more sharply than in the prior quarter, boosted by lower inflation and government investment in infrastructure. Turning to Q3, GDP growth is projected to slow further. The government has committed to a voluntary 10% cut in oil production until at least the end of September, which will continue to weigh on the hydrocarbons sector. The non-hydrocarbons sector has likely continued to grow robustly, with non-oil private business activity rising at a faster rate than the long-term average in July.
Saudi Arabia Inflation
Inflation eased to 2.3% in July (June: 2.7%). Price pressures are expected to remain weak for the rest of 2023 and going into 2024, tamed by government energy subsidies—which the IMF said in August have cost a whopping USD 7,000 per person since their introduction in 2021. A key upside risk to inflation is stronger-than-expected domestic demand.