Saudi Arabia’s growth this year was hampered by lower oil production for longer: Reuters poll

By Anant Chandak

BENGALURU (Reuters) – Saudi Arabia’s economic growth is likely to be one of the slowest among Gulf Cooperation Council (GCC) countries this year, according to a Reuters poll of economists who have cut three-month growth forecasts ago due to prolonged cuts in oil production.

The Organization of the Petroleum Exporting Countries and Russia-led allies known as OPEC+ were expected to start increasing production this year, but in June they said the reductions would continue until 2025.

Despite the war in the Middle East, oil prices have struggled to remain above $80 per barrel, which led the International Monetary Fund (IMF) to reduce this year’s growth forecast for Saudi Arabia, the largest economy in the world. region.

The latest Reuters poll of 24 economists, conducted between July 8 and 22, showed that Saudi Arabia’s economy would grow 1.3% this year, below the 1.9% predicted in an April survey and substantially below the 3. 0% predicted in January.

“Lower oil revenues are having an impact on non-oil growth. Saudi Arabia is in the process of reviewing Vision 2030 and adjusting investment spending… The impact on real GDP growth is clear – less investment means a more moderate growth outlook”, he stated. Ralf Wiegert, director of MENA economics at S&P Global Market Intelligence.

Economists said lower oil revenues will likely constrain investment in non-oil sectors, affecting global expansion in 2024.

But the Saudi growth forecast for 2025 increased to 4.5%, compared to 4.1% in April.

“Expected growth has increased to 2025… The reason for this is a change in expected oil production, which we think will increase sooner than previously projected – although it will not return to the level that prevailed until July 2023,” Wiegert added.

The United Arab Emirates (UAE), also focused on diversifying its economy, was expected to expand faster than its neighbor this year – 3.7% – as it rapidly increases oil production and continues to focus in tourism, followed by growth of 4.2% in 2025. .

“The UAE will be able to increase oil production sooner than other OPEC+ members and, together with a supportive fiscal policy, is likely to maintain its position as the fastest growing economy in the Gulf, both this year and next,” noted James Swanston, Middle East and North Africa economist at Capital Economics.

“In the rest of the Gulf, following OPEC+’s decision to keep oil production low for longer, economic growth in Kuwait, Oman and Bahrain will be weaker this year than we had previously predicted.”

While Kuwait was expected to remain in recession this year, Qatar, Oman and Bahrain were expected to expand by 2.2%, 1.6% and 2.6%, respectively. Overall growth in the region was estimated to average 1.9% in 2024.

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However, inflation was expected to remain subdued, with median forecasts ranging between 1.0% and 3.0% in 2024, including the lowest in Oman and the highest in Kuwait. In Saudi Arabia, an average of 2.1% was expected this year.

“Inflation dynamics in the Gulf have been very benign, even at the height of global inflationary pressures,” said Francesco Arcangeli, emerging markets economist at JP Morgan.

“Overall, we see good inflation behavior. For Saudi Arabia, the main source of recent pressure has been related to rental prices… Upside risks may be related to the ongoing large spending, but on the other hand On the other hand, these appear to be mitigated by a favorable job market.”

(Other stories from the Reuters global economic survey)

(Reporting by Anant Chandak; research by Devayani Sathyan and Veronica Khongwir; editing by Hari Kishan, Jonathan Cable, William Maclean)