RIYADH: After reporting a better than expected GDP growth in the second quarter of this year, Saudi Arabia’s economic growth is expected to slip into negative territory this year, according to economists and analysts.
“Saudi second quarter GDP growth was better than expected, but a headline contraction is only a matter of time,” said Jaap Meijer, Managing Director of Research, Arqaam Capital. The kingdom reported a stronger than expected 1.4 per cent real GDP growth in the second quarter of this year, down from 1.5 per cent in the first quarter. Non-oil GDP grew 0.4 per cent compared to -0.7 per cent in the first quarter of this year as the government sector contributed surprisingly to growth, while the private sector remained barely positive at 0.07 per cent.
Oil GDP growth slowed to 1.6 per cent in the second quarter from 5.1 per cent in the first quarter. Oil GDP growth is expected to drop to -2.8 to -4.7 per cent after the Opec oil deal goes into effect, curbing total GDP growth by about 2 per cent and most likely pushing GDP into negative territory.
In context of the fiscal compulsions faced by the kingdom, analysts expect Saudi energy policy to be less aggressive. “Increasing macro constraints suggest that energy policy will attempt to put a floor under oil prices. To remain consistent with the targeted government debt accumulation path, we estimate that oil prices have to average at least $50/bbl in 2016-20, along with no growth in spending,” said Jean-Michel Saliba, an economist at Bank of America Merrill Lynch.
