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The Saudi economy contracted at a slightly slower pace in 1Q 2024 than initially reported, with GDP falling 1.7% y-o-y to SAR 1 bn, according to the latest Gastat data (pdf). The authority had initially forecasted a 1.8% y-o-y drop, driven largely by a decline in oil activity.
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Non-oil activity rose 3.4% y-o-y during the quarter, up from Gastat’s previous estimate of 2.8%. This was driven by 5.9% y-o-y growth in wholesale and retail, followed by a 5% increase in transportation, storage and communication.
REMEMBER- Non-oil growth is central to the government’s diversification push, designed to reduce the economy's reliance on oil revenues. The latest PMI data showed that private sector activity grew at a slower pace in May, as local demand lost some steam, but remained firmly in growth territory.
So, why is GDP shrinking? Oil activity was down 11.2% y-o-y last quarter. Given the weight of oil on the overall domestic economy — which accounted for 23.4% of GDP in 1Q — the y-o-y downtick dragged down the entire aggregate figure for the quarter.
IN CONTEXT- The Kingdom has voluntarily cut oil production by 1 mn barrels per day to stabilize the global market, as per its ongoing agreement with OPEC+ to slash oil production by a combined 3.7 mn barrels per day until October of this year.
On a quarterly basis: GDP climbed 1.4% compared to 4Q 2023, driven primarily by a 1.7% q-o-q increase in oil activity as well as 0.9% growth in non-oil activity. Government activity slowed by 1.1% q-o-q.
The outlook: The government is gunning for GDP growth to hit 4.4-5.0% for the current fiscal year, Finance Minister Mohamed Al Jadaan said back in December. Meanwhile, the IMF revised its 2024 growth forecast for the Kingdom to 2.6% in April, pointing to the combined effects of lower oil prices and production cuts.
The non-oil outlook: The World Bank — and more recently Riyadh Bank — expect the local non-oil economy to grow a strong 4.8% this year, up from 4.4% in 2023.
