Saudi Arabia: Preliminary estimate shows contraction in GDP eases in Q3
November 10, 2020
The first ever flash figure released by the General Authority of Statistics estimated the economy contracted 4.2% on an annual basis in the third quarter, after plunging 7.0% in the second quarter. The result marked the fifth consecutive quarter of falling output but showed a notable recovery from the previous quarter’s sharp decline—the steepest since current records began in Q1 2011.
Although a detailed breakdown is not yet available, the easing of lockdown measures throughout Q3 likely sparked a strong recovery in the non-oil private sector economy. The non-oil private sector PMI averaged higher in the quarter relative to Q2, while credit growth and point of sale transactions were up notably year-on-year. Moreover, the oil sector likely fared better than in Q2 as output in September increased on an annual basis for the first time since April—chiefly due to a low base effect. That said, average daily crude oil production was lower in Q3 than in Q2 amid ongoing OPEC+ production cuts.
Looking ahead, the recent downward revision to OPEC’s global oil demand outlook for next year has raised concerns over whether the alliance will delay the easing of production curtailments planned for January. The tightening of lockdown measures and uncertainty over the timing and distribution of a Covid-19 vaccine are key risks to global oil demand prospects for H1 next year, and in turn Saudi Arabia’s oil sector. That said, the economy should rebound robustly next year as the impact of domestic lockdown measures fades. Moreover, comprehensive labor market reform initiatives and robust monetary stimulus should also benefit the non-oil private sector.
Commenting on the outlook, analysts at Jadwa Investment noted:
“Whilst 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 see a sequential quarter-on-quarter improvement in the Saudi economy over the remainder of Q4 2020 and next year, with this recovery being more vigorous in the second half of 2021. […] Unsurprisingly, the main risk to our forecast relates to a second wave of Covid-19 occurring in the Kingdom before the roll-out of a vaccine, or indeed a delay in the current assumed timeline related to the roll-out of an effective vaccine.”
Author: Steven Burke, Economist