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The International Monetary Fund (IMF) has cut its forecast for Saudi economic growth to 1.7% this year, down 0.9 percentage points from its earlier forecast of 2.6% in April, per its World Economic Outlook (pdf). The Washington-based lender said the downgrade came on the back of ongoing oil production cuts — it’s the largest single downgrade on growth outlook for the major economies the IMF tracks, according to Reuters.
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This is the IMF’s third downgrade of our GDP growth forecast this year due to combined effects of lower oil prices and production cuts.
- It first lowered its projections for the economy’s growth to 2.7% in January from an earlier forecast of 4.0% in October 2023.
- It then trimmed its forecast further to 2.6% in spring.
By the numbers: The Kingdom’s economy contracted 0.9% last year, down from 8.7% growth in 2022 despite continued growth in the non-oil economy.
LOOKING AHEAD- A downgrade for next year: The IMF also lowered its projections for Saudi GDP growth in 2025 to 4.7%, 1.3 percentage points below its April forecast.
REGIONALLY- The downgrade for Saudi pushed the IMF’s projection for growth in the Middle East and North Africa down by half a percentage point to 2.2%.
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. The Finance Ministry is targeting GDP growth of 4.4% for the current fiscal year, Finance Minister Mohamed Al Jadaan said in December.
How the economy fared in 1Q: The Saudi economy contracted at a slightly slower pace in 1Q 2024 than initially reported, with GDP falling 1.7% y-o-y. State statistics agency Gastat had initially forecasted a 1.8% y-o-y drop, driven largely by a decline in oil activity. Oil activity was down 11.2% y-o-y last quarter, with the y-o-y downtick dragging down the entire aggregate figure for the quarter.
With non-oil activity still the main focus: Non-oil growth is central to the government’s diversification push, designed to reduce the economy’s reliance on oil revenues. It grew 3.4% y-o-y in the first quarter of this year, up from Gastat’s previous estimate of 2.8%.
Are we preparing to formally pace-out some gigaprojects? A government committee led by Crown Prince and Prime Minister Mohammed bin Salman is reportedly wrapping up a review of gigaprojects with a view to trimming spending at some. This comes as officials continue to hammer the idea of preventing the economy from overheating on the back of its economic diversification push while also saying they’re willing to accept modest fiscal deficits as the price of pursuing long-term diversification.
