GDP growth improves in the second quarter

GDP reading: According to a preliminary reading, GDP growth improved to 3.9% year on year in the second quarter from 3.4% in the first quarter. The reading was the second-highest since Q1 2023 and exceeded market expectations. On a seasonally adjusted quarter-on-quarter basis, economic growth picked up to 2.1% in Q2 from 1.1% in the previous period's, marking the fastest expansion since Q1 2024.

Drivers: In annual terms, the oil sector grew 3.8% (Q1: -0.5% yoy), the fastest pace since Q4 2022, reflecting OPEC+’s decision to hike Saudi Arabia’s output quota in every single month of Q2. Non-oil private-sector activities also grew strongly, expanding 4.7% (Q1: +4.9% yoy), boosted by the government’s continued diversification drive. That said, government spending growth slowed to 0.6% (Q1: +3.2% yoy), the weakest pace in two years, potentially dented by lower oil prices.

GDP outlook: Our panelists expect GDP growth to broadly trend upward through Q2 2026, reaching the highest level since Q4 2022. OPEC+ is set to have fully unwound Saudi Arabia’s “voluntary” oil production curbs by autumn 2026, having phased them in from late 2023. Thereafter, GDP growth should cool a bit and then settle near the 10-year pre-pandemic average of 3.9% as oil production expands less sharply. Rising global protectionism poses a risk by dampening external demand for oil.

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