Saudi economy shrinks 1.7% in Q1 as oil activity continues to decline

Saudi Arabia's real gross domestic product fell by 1.7% in the first quarter of this year, the General Authority for Statistics announced on Sunday.

Data published by the Statistics Authority today showed that oil activities contracted by 11.2%, while non-oil activities grew by 3.4% on an annual basis.

Decline in oil activities in Saudi Arabia

The contraction in oil activity is mainly due to the additional voluntary production cuts of 1.65 million barrels per day, which were announced in November 2023. The OPEC+ alliance announced a few days ago the extension of the additional voluntary cuts of 2.2 million barrels per day, until the end of September 2024. The quantities of this reduction will then be gradually restored on a monthly basis, until the end of September 2025, as the alliance aims through these cuts to maintain the stability of global oil markets.

The GDP at current prices amounted to 1.01 trillion riyals in the first quarter of 2024, with crude oil and natural gas activities achieving the highest contribution to GDP at 23.4%, followed by government activities at 15.8%, then wholesale and retail trade, restaurants and hotels activities with a contribution of 10.4%.

The Saudi economy contracted by 0.9% during the entire year of 2023, contrary to the government’s expectations of growth of 0.03%, after being affected by a decline in oil activities by 9.2%, according to figures revealed by the General Authority for Statistics in the Kingdom at the time.

The Kingdom is focusing on diversifying the economy.

Finance Minister Mohammed Al-Jadaan said last October that the Kingdom is no longer focusing on GDP figures, but rather on the development of the non-oil sector, in light of its goal of diversifying the economy according to Vision 2030. He said that the growth of the non-oil GDP in the Kingdom has continued in a healthy manner, and is likely to continue in the medium term.

The economic contraction recorded in the first quarter of 2024 is also largely in line with the International Monetary Fund’s downward revision of Saudi economic growth estimates. In its World Economic Outlook report, the fund forecast growth at a rate of 2.7% for the whole of 2024, compared to 4% in its October estimates, due in large part to the decline in oil production and exports, according to fund officials.