Saudi Arabia’s real GDP contracts 3.7% Q4 2023

Image credit: Getty Images

Saudi Arabia’s real gross domestic product (GDP) shrank 3.7 per cent year on year (YoY) in the last quarter of 2023, as a decline in oil activities by 16.4 per cent continued to weigh on overall growth.

The preliminary data from the General Authority for Statistics shows that Saudi Arabia’s economy contracted at a slower pace in Q4 2023 after a decline of 4.4 per cent in the previous quarter.

For 2023 as a whole, the economy shrank 0.9 per cent, its first full-year drop since the outbreak of the COVID-19 pandemic.

However, non-oil activities and government activities grew by 4.3 per cent and 3.1 per cent respectively, on an annual basis.

The International Monetary Fund (IMF) projected that Saudi Arabia’s economy contracted by 1.1 per cent in 2023 when the kingdom prolonged its oil production cuts leaving the Gulf state pumping 9 million barrels per day (bpd), the lowest in several years.

Following the first budget surplus in nearly a decade in 2022, Saudi Arabia rewrote its medium-term spending plans and shifted from forecasting years of surpluses to deficits until at least 2026 as it accelerates spending.

The kingdom approved its state budget for 2024, which forecasts a fiscal deficit of SAR79bn ($21.1bn) or 1.9 per cent of GDP next year.

The budget estimates expenditures of SAR1.3tn in 2024 and total revenues of SAR1.2tn.

Saudi Arabia cuts oil production

Meanwhile, Saudi Arabia is pumping around 9 million bpd, well below its around 12 million bpd capacity after cutting production as part of an agreement with OPEC and other oil producers.

Earlier this week, the government ordered Aramco to halt its oil expansion plan and to target a maximum sustained production capacity of 12 million bpd, 1 million bpd below a target announced in 2020.

“It is to be noted that maximum sustained production capacity is determined by the state according to the hydrocarbons law, enacted by Royal Decree M/37, dated 12/20/2017,” the state energy firm said in a filing while highlighting that it will update its capital spending guidance when it announces its full-year 2023 financial results.

Global benchmark Brent crude has averaged around $79 a barrel so far in 2024, less than Saudi Arabia needs to balance its books, according to the IMF’s forecasts.

Read: UAE economy to grow by 5% in 2024, says S&P Global