Saudi oil production cuts paused the recovery from the pandemic in the first quarter. Growth is expected to rebound in the second quarter and the second half of 2021.
Saudi GDP went down by 3.3% year on year (y/y) in comparison to the first quarter and was all but flat with a small 0.1% drop compared to the final quarter 2020, according to GAStat. The Saudi economy had a relatively mild recession in 2020, with real GDP falling by 4.1% as the non-oil sector of the economy outperformed most expectations.
The decline has been solely due to the oil sector as Saudi oil production was cut from an average of 9.1 million barrel/day (mb/d) in January to 8.1 mb/d in February and March. This was based on a voluntary decision from the Saudi government that went beyond the decisions taken by the OPEC+ group of countries.
The non-oil sector of the economy rebounded and posted growth for the first time since the start of the COVID-19 pandemic in the first quarter of 2020. Year-on-year non-oil growth was 3.3% following -0.9% in the final quarter 2020. On the quarter, the non-oil growth rate slowed from 4.9% in the final quarter of 2020. However, the 4.0% growth rate published by GAStat for the first quarter represents a solid increase nevertheless.
Outlook
Saudi growth will rebound again more forcefully in the second quarter and the second half of 2021, when the impact of higher oil production will be fully reflected in the quarterly GDP results again. Monolith’s current full year growth projection for the Saudi economy, at 2.7%, is likely a bit high compared to the outcome in the first quarter; however, we are confident that growth will catch up over the course of the year.
It will not only be due to oil, though. We assume that the impact of the pandemic will decline in the second half of this year; religious activities such as a Hajj pilgrimage will likely be possible on a still-limited scale, but a larger scale than in 2020.
Part of the stimulus for the economy is coming from the government, which has embarked on a huge investment plan connected with the Saudi Vision 2030. The associated investment spree will keep growth relatively high in the medium term; in 2022, the Saudi economy is expected to grow by 5.6%, according to our assumptions.