Oil output rise greases wheels of Saudi GDP
Saudi Arabia’s economy began to recover in the first quarter of 2018 after shrinking for the first time in eight years during 2017, official data showed on Sunday, and the recovery looks set to accelerate in coming months with a rise in oil production.
GDP, adjusted for inflation, grew 1.2% from a year earlier in the first three months of 2018, the government’s statistics agency said. GDP had dropped from a year earlier in every quarter of 2017 as a global pricesupporting agreement among oil exporting countries caused Saudi Arabia to cut back its crude output. For the whole of 2017, GDP shrank 0.7%.
The impact of the oil deal faded at the start of 2018 after Saudi Arabia completed the required cuts. This allowed the oil sector, comprising over 40% of the economy, to grow 0.6% from a year ago in the first quarter — a big contrast to its 4.3% fall in the last quarter of 2017.
Global producers agreed in June to boost output by a combined 700,000 to 1-million barrels per day (bpd) and as the world’s biggest crude exporter, Riyadh may account for the lion’s share of the increase.
US President Donald Trump said in a tweet on Saturday that Saudi Arabia’s King Salman had agreed to boost output by as much as 2-million bpd to offset anticipated losses in production by Iran, which faces US sanctions, and Venezuela.
Analysts think such a big jump is very unlikely. But Abu Dhabi Commercial Bank chief economist Monica Malik said she was conservatively assuming a rise in average Saudi output of 500,000 bpd in the second half of 2018, which would be a year-on-year increase of about 5%.
Supply disruptions elsewhere in the world could cause Riyadh to lift output even more, Malik said, predicting Saudi GDP growth of 2.1% in 2018, led by the oil sector.
Many non-oil businesses in Saudi Arabia are struggling under the weight of austerity steps designed to cut the government’s big budget deficit. A 5% VAT was imposed at the start of 2018 and domestic fuel prices were increased.
As a result, Malik predicted only modest non-oil GDP growth of 1.8% in 2018, up from 1% in 2017.