Saudi Arabia: Economy remains in recession in Q4 on shrinking oil sector
March 31, 2018
The economy declined for a fourth consecutive quarter in Q4, with GDP contracting 1.2% year-on-year (Q3: -0.4% year-on-year) on lower oil output and a slowdown in the non-oil sector.
The hydrocarbon sector once more dented the economy’s performance in the fourth quarter, as Saudi Arabia continued to comply with OPEC oil production cuts; oil output was down markedly compared to the same period in 2016. The sector shrank 4.3% year-on-year (Q3: -4.1% yoy)—despite a substantial uptick in oil prices towards the end of last year—with exports down sharply as a result. The non-oil sector also lost steam (Q4: +1.3% yoy; Q3: +2.1% yoy), despite strong global economic activity, as private sector activity growth ebbed. Looking at sub-components, construction activity contracted for the eighth consecutive quarter as austerity measures continued to take their toll, while growth in the wholesale and retail trade, financial and real estate services, and transport sectors softened.
Looking ahead, the economy should return to growth this year. Although the oil sector will remain hampered by OPEC production cuts through to at least the end of 2018, higher crude prices should see the oil sector record tepid growth this year. In addition, the non-oil sector will be boosted by a more expansionary fiscal stance, which will see cash drawn from the Public Investment Fund (PIF) and the National Development Fund (NDF) for capital investment, on top of greater budgetary spending. The positive impact on domestic demand will more than offset the dampening impact of the introduction of VAT in January.