Rising oil output boosts Saudi economic growth

Rising oil output boosted Saudi Arabia’s economic growth to its fastest pace in over a year in the second quarter of 2015, data showed on Monday, but growth looks likely to slow in coming months as low oil prices make themselves felt.

Gross domestic product, adjusted for inflation, expanded 3.8 per cent from a year earlier in the second quarter, accelerating from a revised 2.3 per cent in the first quarter, the state statistics department said.

It was the fastest growth since 6.4 per cent in the first quarter of 2014 — showing the economy of the world’s biggest oil exporter is still coping comfortably with cheap oil, which is less than half its mid-2014 price.

To defend its share of the global oil market, Saudi Arabia pumped a record 10.56 million barrels of oil per day in June, up 231,000 bpd from May.

This helped the oil sector grow 5.1 per cent from a year ago in the second quarter, accelerating from 1.8 per cent in the first. Growth in the non-oil sector was little changed at 3.1 per cent against 3.0 per cent.

Analysts think Saudi Arabia can’t escape the impact of cheap oil indefinitely, however. Growing concern among businessmen over the government’s huge budget deficit, expressed in the Saudi media over recent weeks, suggests companies and consumers may become more cautious about spending.

Meanwhile, there are signs that the government has started slowing or shelving some of its huge infrastructure projects to save money. For example, Spain’s Talgo said in July that Saudi Arabia had cancelled a $201m contract for six high-speed trains.

“We are likely to see a gradual deceleration in growth going forward – though it will not be abrupt,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

Any slowdown may become more pronounced in 2016, as market pressures make it harder for Saudi Arabia to keep raising oil output at such rapid year-on-year rates. State spending may drop as a one-off bonus of two months of salary for public employees, paid in early 2015 to mark the accession of King Salman, is not
repeated next year.

A Reuters poll of economists published earlier in August found them predicting Saudi GDP growth would ease to a median 2.6 per cent next year from 3.0 per cent in 2015.