The economy closed 2023 in contraction, shrinking 3.7% in 4Q

The economy contracted by 0.9% in 2023 on the back of a 9% drop in oil activity,according to the latest figures (pdf) from Gstat. This is in line with the 1.1% contraction estimated by the IMF in its latest World Economic Outlook Update (pdf).

The silver lining: The non-oil economy grew 4.6% in the same period, and government spending climbed 2%.

Background:The Kingdom started trimming its oil production by 500k barrels per day in April 2023 in a bid to arrest falling oil prices. This was compounded by another 1 mn bpd of voluntary cuts in June, which was scheduled to end in December 2023 before the government, in November, decided to extend the duration to 1Q 2024. Aramco is currently pumping 9 mn bpd.

The gov’t expected near-zero growth: The government had estimated that GDP would increase 0.03% in 2023, with a 6% growth in the non-oil sector. Meanwhile, It expects the economy to rebound in 2024 with a 4.4% growth, according to the budget statement (pdf).

Pundits saw it coming: “A continued contraction in the oil sector was expected,” the chief economist at Abu Dhabi Commercial Bank, Monica Malik, told Bloomberg.

4Q in a nutshell: The economy shrank 3.7% on an annual basis in 4Q 2023, according to the latest figures (pdf) by the General Authority for Statistics (Gstat). This was driven by a sharp decline of 16.4% in oil activity, which accounts for 40% of GDP.

Non-oil activity expanded at 2.6% q-o-q in 4Q 2023, the highest increase on a quarterly basis in 2023. “A rebound in non-oil activities has pulled Saudi Arabia out of its technical recession. This is a relief — the sectors generate most jobs for citizens and profits for companies. Their slowdown in recent quarters was both worrying and mysterious given significant government spending,” said Bloomberg Economics’s chief emerging markets economist, Ziad Daoud.

The outlook:The Finance Ministry is targeting GDP growth of 4.4% in its budget for this year, Finance Minister Mohamed Al Jadaan said last month. This is lower than the 2.7% forecast by the IMF. Benchmark Brent crude is currently trading at USD 79 a barrel, which is USD 29 short of the price that would allow the government to dodge a deficit this year, according to Bloomberg Economics.