Saudi Arabia’s gross domestic product showed signs of recovery in the first quarter after contracting last year, as oil production stabilised for the world’s biggest crude exporter following Opec-led output cuts.
The kingdom's real GDP – a measure of total economic output adjusted for inflation – rose 1.2 per cent year-on-year to 647.8 billion riyals (Dh634.41bn), during the first three months of 2018, the General Authority for Statistics said in a report released on Sunday.
The rebound may gain further momentum over the remainder of this year after Opec agreed to boost oil production.
The oil sector expanded 0.62 per cent to 273.28bn riyals in the quarter ending March 31 compared to a year earlier, the government agency said.
Saudi Arabia’s GDP began to recover this year after shrinking by 0.8 per cent in the first quarter of 2017 and 0.9 per cent for the full year of 2017 in the aftermath of an agreement by oil-producing countries to cut output. Saudi oil production is expected to increase over the next few months after Opec members agreed in a Vienna meeting last month to raise crude output by 700,000 barrels per day in real terms. The kingdom may shoulder the biggest share of that increase.
“The return to economic expansion was supported by growth in the oil sector ... after four quarters of real contraction,” Monica Malik, chief economist at Abu Dhabi Commercial Bank, said yesterday. “We expect a marked strengthening in oil sector activity in real and nominal terms from the second quarter.”
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ADCB expects the rise in Saudi crude output to reach 500,000 barrels per day during the second half of the year, which would amount to a 5 per cent year-on-year. The kingdom's economy, in real terms, could expand by 2.1 per cent in real terms, led by the oil sector, Ms Malik said.
The Saudi non-oil economy grew 1.6 per cent year-on-year after declining 0.3 per cent in the first quarter of 2017, the statistics agency report said.
The rate of of expansion was a more modest 1.3 per cent when compared with the levels at the end of last year's fourth quarter, after which Riyadh imposed 5 per cent value-added tax in January and cut subsidies for local electricity and fuel prices.
“We expect some gradual tick up in non-oil activity from 2Q 2018, with the higher oil revenue supporting stronger government spending,” according to Ms Malik. “There are already some tentative signs of greater activity, including a pick-up in private sector credit growth.”
A measured rise in household spending from March, as the VAT impact wanes, is another indication. However "an exodus of the expat population" in the kingdom and still-high unemployment will limit the recovery in private spending, she said.
Several non-oil segments of the economy grew marginally in the first three months of 2018, according to government data . Riyadh has introduced fiscal reforms to rein in its budget, which has added to the pressure on business costs such as a levy on the expat workforce.
The private sector economy, which is expected to create new jobs, especially among young Saudis to reduce the unemployment rate of 12.8 per cent, expanded by 1.12 per cent in the first quarter of 2018, faster than 0.34 per cent a year earlier.
The construction sector, however, declined 2.4 per cent to 28.8bn riyals during the period, as the industry struggled with tighter government expenditure and decisions to nationalise some of the large-scale multibillion-dollar new projects when oil prices hit a three-year low.
The wholesale, retail, hospitality and restaurants business also shrank 0.5 per cent to 57.1bn riyals. The contraction suggests that Saudis have curbed spending on some goods and services after the introduction of VAT, Ms Malik said.
Manufacturing, an industry that has become a focus of the government’s economic diversification efforts, grew 3.3 per cent in the first quarter after shrinking 0.16 per cent in the same period a year earlier.
The finance, insurance and real estate sectors also grew 2.1 per cent to 62.7bn riyals, albeit slower than the 3 per cent from a year ago.