Saudi Arabia: Preliminary estimate points to softer contraction in GDP in Q4
A flash figure released by the General Authority of Statistics estimated the economy contracted 3.8% on an annual basis in the fourth quarter of 2020, after plunging 4.6% in the third quarter. The result marked the sixth consecutive quarter of falling output but showed a slight recovery from the previous quarter’s sharp decline.
Although a detailed breakdown is not yet available, the easing of lockdown measures throughout Q4 likely sparked a strong recovery in the non-oil sector of the economy. The non-oil private sector PMI averaged noticeably higher in the quarter relative to Q3, while credit growth and point of sale transactions remained healthy year-on-year. Meanwhile, despite oil production rising in Q4 relative to the third quarter, a low base effect in the third quarter due to a terrorist attack back in September 2019 on one of Saudi Arabia’s oil facilities—which temporarily hampered output—should have resulted in the oil sector faring worse in annual terms in the fourth quarter relative to the quarter prior.
Overall, GDP contracted 4.1% in 2020—the sharpest fall since comparable records began back in 1991—after rising a modest 0.3% in 2019.
Looking ahead, the Kingdom’s decision to unilaterally cut oil production in February–April by roughly 1.0 million barrels per day, more than what was required under the OPEC+ agreement, will likely be taking a stronger toll on the oil economy in the first quarter of 2021. That said, the opening and expansion of some gas facilities—particularly the Jazan refinery and the Hawiyah processing plant, respectively—should support the energy sector ahead. Furthermore, higher oil prices on average, the reopening of economies globally and vaccination efforts underpinning business and consumer confidence should support the non-oil economy this year.
Commenting on the outlook for the non-oil economy, analysts at Jadwa Investment noted:
“Looking out into 2021, while there is still a considerable degree of uncertainty as a result of the prevalence of Covid-19 and its potential impact on the non-oil economy, we nevertheless expect a broad-based recovery. Our forecast assumes between 15-20 percent of the adult population being vaccinated against Covid-19 by mid-2021, and 70 percent by year end. As such, we see a quarter-on-quarter improvement in the Saudi non-oil economy, with this recovery being more vigorous in the second half of 2021.”