Saudi Arabia may have to revise down economic growth estimates as lower crude output and tumbling oil prices take their toll on economic activity, with some economists forecasting a contraction this year in the world’s biggest oil exporter.
The Saudi central bank forecast economic growth of at least 2% this year but economists now expect marginal growth at best or a slight shrinkage, its second in two years.
“A lot of this weakness is due to the impact of oil production cuts, which will exert a large drag on GDP growth,” said William Jackson, chief emerging markets economist at Capital Economics, which forecast 0.3% growth in 2019.
Monica Malik, an economist at Abu Dhabi Commercial Bank, said Saudi real gross domestic product (GDP) could contract by 0.2%, citing output cuts. The bank in February made a forecast of 0.9% growth.
Saudi Arabia has recently restrained crude production by more than called for by an OPEC-led supply deal to support oil markets. But concern about slowing oil demand and the weakening global economy have kept prices under pressure, particularly after a recent escalation in the U.S.-China trade war.
“Any forecast that was made more than a month ago will have to be updated given indicators that we are entering global slowdown,” said an economist in Riyadh, who wished to remain unnamed.
“Given all these things Saudis will have to revise the figures down, especially if oil goes to $55 and stays there or goes below $50 in a global recession scenario or a generalized trade war.”
Oil prices are down by about a fifth since April and Brent crude was trading at less than $60. LCOc1
The finance ministry did not respond to a Reuters’ request for comment on whether the kingdom would revise its forecasts.
The Saudi economy remains hostage to hydrocarbon revenues despite an ambitious 2030 economic vision unveiled by Crown Prince Mohammed bin Salman in 2016 to do the exact opposite.
Saudi Arabia has kept oil production under 10 million barrels per day in July and August, below its 10.3 million bpd output target in the deal between OPEC and its allies.
Oil and gas output continues to account for about 43% of real GDP, Moody’s said, so output cuts in the past two years have intensified GDP growth volatility.
The non-hydrocarbon economy is still expected to grow over 2% this year, economists said, partly because of higher state spending.
Government expenditure rose 6% in the first half of the year from the same period in 2018, broadly in line with a budgetary target of increasing spending by 7% in 2019 to spur growth.
The Saudi economy, the largest in the Middle East, has suffered in recent years because of low oil prices and austerity measures aimed at reducing a sizeable budget deficit.
However, if oil prices stay low, fiscal policy is set to become “less supportive and weigh on non-oil activity”, said Virág Fórizs, emerging markets economist at Capital Economics.
The International Monetary Fund estimates Saudi Arabia will have a fiscal deficit of 6.5% of GDP this year, well above the government’s own projection of 4.2%.
Source: News Agencies