The economy is set to shrink for the first time on an annual basis since covid, with the Kingdom’s GDP is expected to contract by 0.5% y-o-y this calendar year compared to 8.7% growth in 2022. The culprit? Voluntary oil cuts of 1 mn bpd from July until the end of the year, according to the World Bank’s latest Gulf Economic Update (pdf), out last week. The multilateral lender sees an 8.4% y-o-y contraction in oil activity in 2023 — the sector grew 15.5% in 2022.

The third quarter saw the sharpest contraction since 2020 as the economy contracted 4.5% y-o-y, down from 8.6% growth in the previous year on the back of a 17.3% decline in oil activities according to figures from the General Authority for Statistics (pdf).

PRIVATE SECTOR BOOM CONTINUES-

But the non-oil economy is still roaring, thank you: Non-oil GDP will grow at a 4.3% y-o-y clip this year on the back of “looser fiscal policy, robust private consumption, and public investment drive,” cushioning the anticipated downturn, the World Bank writes.

And that squares nicely with what businesses are reporting: The Riyadh Bank Saudi purchasing managers’ index (PMI) rose for the second consecutive month to 58.4 in October, up from 57.2 in September on the back of new business orders, leading to a nine-year high in employment growth. It was the highest reading since June of this year.

DEFICIT SPENDING-

Reversing a 2022 surplus: The economy hit an SAR 44 bn deficit in 9M 2023 with SAR 854 bn in revenues and SAR 898.3 in expenditure according to the Finance Ministry figures (pdf). Most of that figure accumulated in 3Q 2023 (SAR 35.8 bn) on the back of lower oil receipts.

The gov’t has reportedly taken on a USD 11 bn in syndicated facility to help finance the budget deficit, Bloomberg reports, citing unnamed sources it says are familiar with the matter. The 10-year loan was covered by 18 banks, according to the sources. Information about the debt-instrument, pricing, and participating banks was not public.

BETTER TIMES AHEAD-

Bouncing back in 2024:While we are expected to be the only economy in the Gulf Cooperation Council to see the economy contract this year, GDP should grow 4.1% y-o-y in 2024 — putting os on track to lead he GCC in growth next year. The World Bank sees the UAE coming in as the second-fastest growing with at 3.7% next year.

SLOWER REGIONAL GROWTH-

The GCC economy as a while is shifting to a lower gear this year, with the economy expected to contract 1% y-o-y before growing 3.6% in 2024 and 3.7% in 2025. Still, the region’s private sector will grow at a 3.9% clip this year.

Israel’s war in Gaza provides downside risk: “The current conflict in the Middle East poses significant risks to the region and the GCC outlook, especially if it extends or involves other regional players. As a result, global oil markets are already witnessing higher volatility,” said World Bank Country Director for the GCC Safaa El Kogali.

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