Saudi Arabia: GDP growth slows for fourth consecutive quarter in Q2
A flash estimate showed that the economy grew 1.1% on an annual basis in Q2 after expanding 3.8% in Q1. The print marked the fourth consecutive quarter in which GDP growth has slowed.
As expected by the market, the oil sector contracted 4.2% in Q2 (Q1: +1.4% yoy) as a result of the lower OPEC quotas agreed to earlier in the year. Meanwhile, growth in the non-oil private sector strengthened slightly to 5.5% (Q1: +5.4% yoy), and growth in the government services sector weakened to 2.7% (Q1: +4.9% yoy).
On a seasonally adjusted quarter-on-quarter basis, the economy contracted 0.1% in Q2 after weakening 1.4% in Q1.
The Consensus is for year-on-year GDP growth to slow further in Q3. The oil sector is likely to weaken even more precipitously than in Q2 as a result of the roughly 10% voluntary production cut in force since July. This is set to last until at least the end of September. That said, the non-oil sector should continue to grow strongly, aided by government infrastructure investment: Non-oil private sector business activity continued to rise at a rate above the historical average in July, according to PMI data.
Analysts at EIU said:
“It was already apparent that, following an impressive 8.7% expansion in 2022, base effects would weigh heavily on real GDP growth this year. However, oil production cutbacks—as the Saudi authorities attempt to support global oil prices and keep the OPEC+ group of oil exporters intact—are now adding to the downward pressure.”