Saudi Arabia’s oil production cuts to slowdown growth, says IMF outlook

OPEC+ allies Saudi Arabia and Russia are at the opposite extremes of the International Monetary Fund’s latest global outlook despite joint efforts to cut crude output.

The kingdom is getting the steepest growth downgrade among major economies from the IMF at a time when the Kremlin’s wartime budget stimulus helps offset its oil curbs.

Saudi Arabia’s economic growth prospects

Saudi Arabia, the fastest-growing economy in the Group of 20 last year, is on track to expand just 1.9 per cent in 2023, a downward revision of 1.2 percentage points from the fund’s earlier estimate.

By contrast, the IMF improved its view of Russia by 0.8 percentage points and now expects the economy to add 1.5 per cent, after what it said was a “large fiscal stimulus” in the first half.

For Saudi Arabia, the downgrade “reflects production cuts announced in April and June in line with an agreement through OPEC+,” the IMF said in its World Economic Outlook published Tuesday.

The diverging assessments underscore the economic cost of Saudi efforts to shoulder the burden of supporting oil markets after announcing plans to curb daily production by 1 million barrels through July and August. Some analysts have even warned the kingdom’s gross domestic product could shrink, especially if supply cuts are carried through to the end of the year.

Last year, the Saudi economy expanded by nearly 9 per cent, propelled by a spike in energy prices following the Russian-Ukraine crisis.

Russia’s oil output

While Russia has promised to cut its crude output by 500,000 barrels a day in March from February and maintain those curbs through 2024, the government’s classified oil-output data makes it difficult to assess whether the country is complying with its commitment in full.

Russia expects its oil production, including a light oil called condensate, to fall 3.7 per cent from last year to around 10.34 million barrels a day. The outlook factors in the Kremlin’s pledge to cut its output in response to Western sanctions, which include a price cap on crude and oil products exports.

Crude oil prices have gained in recent weeks as the cuts have come into effect. But concerns remain that higher interest rates could throttle economic activity in the US and Europe.

IMF outlook for major economies

The IMF earlier said Saudi Arabia would need Brent prices to average over $80 a barrel to balance its budget this year. If production cuts were to be prolonged and oil prices don’t pick up significantly, the kingdom’s budget may fall deeper into deficit.

Bloomberg Economics projects the Saudi economy will contract by 0.1 per cent this year if the government raises production in September and by one per cent if it keeps the curbs in place.

Growth of 1.9 per cent would put Saudi Arabia barely ahead of the US, which is forecast to expand 1.8 per cent this year, and far behind major emerging economies such as India and China. Brazil received the only upgrade bigger than Russia’s.

The impact of a slowdown in Saudi Arabia will be felt across the Middle East and Central Asia, according to the IMF. Economic growth in the region is set to slow to an estimated 2.5 per cent from 5.4 per cent in 2022.

Still, growth is more resilient in the Saudi non-oil economy, the focus of Crown Prince Mohammed bin Salman’s transformation plan, which employs the vast bulk of citizens. Officials expect it to expand 5.8 per cent this year.

“Private investment, including from ‘giga-project’ implementation, continues to support strong non-oil gross domestic product growth,” the IMF said.

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