Saudi economy beats estimates with 12.2% Q2 growth on higher oil prices

The annualised economic expansion rate in three months to the end of June was the quickest since the third quarter of 2011

An Aramco storage tank in Saudi Arabia. The oil sector has contributed the most to the kingdom's economic expansion in the second quarter of this year. AP

Saudi Arabia’s economy grew by 12.2 per cent in the second quarter, exceeding initial estimates and registering the fastest expansion in more than a decade, due to higher oil prices.

The annualised real gross domestic product growth in three months to the end of June was the quickest since the third quarter of 2011, the kingdom’s General Authority for Statistics, better known as Gastat, said on Thursday.

The headline growth rate was higher than the 11.8 per cent second-quarter flash estimate released at the end of July by the authority. Quarter on quarter, the kingdom’s GDP expanded 2.2 per cent, according to the latest Gastat data.

Oil-related economic activity in Saudi Arabia, Opec’s biggest crude producer, jumped by about 23 per cent on an annual basis during the April to June quarter. The hydrocarbons sector grew 4.4 per cent, compared with the first three months of the year.

Non-oil economic activity rose 8.2 per cent on an annual basis, revised higher by Gastat from its 5.4 per cent flash estimates. On quarterly basis, the non-oil sector recorded a 4.5 per cent rise.

Government services activities increased 2.4 per cent, year on year, during the second quarter, supporting the growth of the Arab world’s largest economy, the latest data showed.

The kingdom’s GDP at current prices stood at 1.05 trillion riyals ($280 billion) in the second quarter of this year, with crude petroleum and natural gas activities contributing 38.7 per cent to the national economy.

Government services activities accounted for 13.9 per cent while the manufacturing sector — excluding petroleum refining activities — contributed 7.5 per cent.

“All economic activities showed positive annual growth in the second quarter of 2022,” Gastat said.

“Crude petroleum and natural gas activities grew at the highest rate of 23.5 per cent, year on year [5.1 per cent quarter on quarter], followed by petroleum refining activities with a growth of 16.6 per cent, year on year, while decreasing by 2.6 per cent quarter on quarter.”

A 16.4 per cent rise in wholesale and retail trade, restaurants and hotels activities supported the growth of the kingdom’s non-oil sector economic activity, data showed.

Saudi Arabia, the world's biggest oil exporter, made a strong rebound from the coronavirus-induced slowdown, with economic momentum picking up pace this year amid a sharp rise in oil prices.

The kingdom’s economy grew 9.9 per cent in the first quarter of this year — the strongest growth rate among the world's largest economies in the period from January to March.

In June, the Organisation for Economic Co-operation and Development forecast 10.4 per cent growth for the Saudi economy in the first quarter of this year, compared with an average of 4.5 per cent projected by G20 economies during the period.

Saudi Arabia’s GDP is forecast to expand 7.6 per cent this year after 3.2 per cent growth in 2021, the International Monetary Fund said in its World Economic Outlook update in July.

Non-oil growth will increase to 4.2 per cent in 2022 before returning to its medium-term potential of 4 per cent.

The kingdom’s economy is set to grow at the quickest pace in a decade and could be one of the world’s fastest-growing economies this year, the IMF said in August.

Oil prices, which rose 67 per cent last year, have remained volatile this year amid the Russia-Ukraine conflict.

Brent, the benchmark for two thirds of the world's oil, has come off its recent highs amid concerns about the outlook for demand. However, it is still about 14 per cent higher than at the beginning of this year.

Despite fears of a global recession and a weaker global economy, supply constraints resulting from years of underinvestment in the energy industry continue to support crude prices in the short to medium term.

Business conditions in Saudi Arabia’s non-oil private sector have also improved consistently in recent quarters. The seasonally adjusted S&P Global purchasing managers’ index climbed to 57.7 in August, the highest level since October 2021, as new business growth hit a 10-month high.

Inflation in Saudi Arabia has stayed low, compared with most advanced economies, amid a rise in per capita income.

GDP per capita in the kingdom surged in the April to June quarter, rising 44.6 per cent on an annual basis to 29,819 riyals ($7,941), Gastat said.

The IMF expects inflation to remain contained at 2.8 per cent in 2022 as the kingdom’s central bank tightens policy in line with the US Federal Reserve.

Consumer prices in Saudi Arabia increased by 2.7 per cent on an annual basis in July, higher than the 2.3 per cent rate of inflation recorded in June, Gastat said at the time.