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Saudi Arabia’s Economy Contracts In Q3 As Oil Production Cuts Weigh On Growth

Saudi Arabia’s economy shrank in the third quarter by 4.5% year-over-year, due to lower oil production and activities, the General Authority for Statistics of the world’s top crude oil exporter said on Tuesday.

The flash estimates of the authority showed that lower oil activities dragged down the economy into the first quarterly decline since the beginning of 2021.

Non-oil activities and government activities grew by 3.6% and 1.9%, respectively, on an annual basis, during the third quarter.

Seasonally adjusted real gross domestic product (GDP) fell by 3.9% between July and September, compared to the previous quarter, the flash estimates showed. This decrease was due to the drop in oil activities and government activities by 8.4% and 5.3%, respectively, while non-oil activities inched up by 0.1% on a quarterly basis.

At the beginning of this month, Saudi Arabia said that it would continue cutting an extra 1 million barrels per day (bpd) from its crude oil production in November and December.

The cuts are expected to take their toll on the Saudi economy this year, major forecasters have said in recent months.

Despite the extension of the oil production cuts, Saudi Arabia is set to keep the growth momentum in its non-oil sector, which accounts for around 60% of GDP, according to the International Monetary Fund (IMF).

While oil exports from the world’s top crude oil exporter are falling, the non-oil economy in the Kingdom is faring well and will do so in the near term, Amine Mati, the IMF’s mission chief for Saudi Arabia, told Bloomberg in an interview last month.

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Earlier this year, the IMF said that Saudi Arabia’s economy is set to markedly slow down this year from last year’s 8.7% growth due to the oil production cuts the world’s top crude exporter is implementing in a bid to “stabilize the market.”  

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on October 31 2023 said:
    Despite great efforts of diversification and s growing non-oil sector, the Saudi economy is still primarily an oil-based economy and will remain so well into the future.

    This is evidenced by the fact that the Saudi economy shrank by 4,5%
    in the third quarter of 2023 year-over-year due to lower oil production and exports according to Saudi official data.

    Saudi GDP grew by 3.9% between July and September, compared to 8.4% in 2022 mainly due to lower oil prices and oil exports.

    In June this year Saudi Arabia announced a voluntary production cut of 1.0 million barrels a day (mbd) later extended until the end of the year. At the time the Saudis said that the cut has to do with the market and prices. But my analysis indicates that the cut has nothing to do with the market and prices and everything to do with production difficulties.

    Why else would Saudi Arabia sacrifice lucrative oil exports at a Brent crude price of $90 a barrel which is 5.9%-8.4% higher than its fiscal breakeven price of $83-$85? And since its economy is primarily an oil-based economy, why would it cause its GDP to shrink by 4.5% unless it is facing production difficulties?

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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