Saudi Arabia’s real GDP shrinks 0.8% in 2023, oil sector weighs

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Saudi Arabia’s economy contracted by 0.8 per cent in 2023 compared with a year earlier, as a decline in oil activities by 9 per cent continued to weigh on overall growth.

The latest data from the General Authority for Statistics shows that the kingdom’s real gross domestic product (GDP) shrank 4.3 per cent year-on-year (YoY) in Q4 2023 and 0.6 per cent quarter-on-quarter, hurt by cuts to oil production and lower crude prices.

However, non-oil activities and government activities grew by 4.4 per cent and 2.1 per cent respectively, on an annual basis.

Saudi Arabia’s non-oil growth economy is being spurred by strong domestic demand, particularly private non-oil investment.

The International Monetary Fund (IMF) said sustaining growth requires pursuing sound macroeconomic policies and maintaining the reform momentum.

The kingdom’s non-oil economy is expected to expand by more than 5 per cent in the medium term, Finance Minister Mohammed Al Jadaan told delegates at the Saudi Capital Markets Forum in February.

“If you look at the non-oil GDP, it is growing at very healthy numbers: 4 per cent and north of 4 per cent. We are expecting more than 5 per cent in the medium term,” said Jadaan.

The IMF projected non-oil growth in the GCC region – of which Saudi Arabia is a member – to reach 3.9 per cent in 2024 and 4 per cent in 2025.

The fund also slashed its Saudi GDP growth forecast to 2.7 per cent but said that non-oil growth was still expected to remain “robust”.

Saudi Arabia drives economic diversification

Meanwhile, Saudi Arabia is midway through its Vision 2030 economic transformation plan, putting an expanded private sector and non-oil growth at the centre of its future development agenda.

The kingdom has undergone a breakneck transformation over the years. Its sovereign fund the Public Investment Fund (PIF) is central to the government’s economic reform initiative as it looks to wean the economy off its heavy reliance on oil revenues.

PIF is tasked with stimulating inward investment, accessing new technologies, developing local industries and addressing widespread underemployment in the country. To date, the wealth fund has established more than 77 companies and created over half a million direct and indirect jobs.

Saudi Arabia posted a fiscal deficit of $21.6bn (SAR80.9bn) in 2023, as total spending increased 11 per cent from the previous year while oil revenue declined. The kingdom’s finance ministry said total expenditure rose 11 per cent from the previous year to SAR1.29tn in 2023.

Read: Saudi Arabia posts 2023 budget deficit of $22bn