Saudi Arabia’s economy declines 1.8% in first quarter, driven by 10.6% slump in oil sector

Saudi Arabia’s economy contracted in the first quarter of the year on the back of a slump in the oil sector, despite an expansion in non-oil activities during the period.

The kingdom’s real gross domestic product contracted by 1.8 per cent annually in the period from January to March, according to flash estimates released by the General Authority for Statistics.

The decrease was primarily driven by a 10.6 per cent decline in the oil sector, it said.

Non-oil business activity increased 2.8 per cent and government activity expanded by 2 per cent on an annual basis.

The kingdom’s seasonally adjusted real GDP increased by 1.3 per cent on a quarterly basis, the authority said.

The growth was driven by a 2.4 per cent increase in the oil sector, along with a 0.5 per cent growth in the non-oil sector, it said.

The government sector declined by 1 per cent, the authority said.

Saudi Arabia, the Arab world’s largest economy, has been focusing on diversifying its economy away from oil as part of its Vision 2030 agenda.

The country, which posted a 0.8 per cent contraction in its GDP last year – mainly due to a sharp decline in the oil sector – has been reducing crude output along with other members of the Opec+ alliance as part of efforts to “balance the market”.

Earlier this year, state oil company Saudi Aramco abandoned a plan to increase its production capacity to 13 million barrels per day, from 12 million bpd currently.

Brent crude, the benchmark for two thirds of the world’s oil, fell by about 10 per cent in 2023 on higher-than-expected supply from non-Opec countries and concerns about crude demand.

Prices have gained more than 10 per cent this year, an increase driven in part by supply worries due to geopolitical tension, along with the Opec+ output cuts. However, fears of weak demand have been pulling down prices, as expectations rise that the US Federal Reserve will not be cutting interest rates soon due to persistently high inflation and strong job numbers.

Saudi Arabia, which has been focusing on developing its nonoil sector, also recently said it would adapt its Vision 2030 strategy to current economic and geopolitical challenges.

The kingdom would “downscale” or “accelerate” some of the projects being carried out under the programme, Saudi Arabia’s Finance Minister Mohammed Al Jadaan said at a special meeting of the World Economic Forum in Riyadh last week. Asked whether Saudi Arabia had to “mark-to-market” its expectations regarding the goals of the 14-year long programme, Mr Al Jadaan said: “Absolutely, yes.”

While the kingdom could increase its GDP growth rate by boosting oil production, such an expansion would not be “quality growth, but quantity growth”, he said.