Saudi Arabia’s economy contracts by 4.5% in third quarter amid oil production cuts

Oil activity fell by 17.3 per cent in the three-month period, government data shows

Saudi Arabia’s non-oil activity increased in the third quarter by 3.6 per cent on an annual basis. EPA

Saudi Arabia’s economy contracted by 4.5 per cent annually in the third quarter due to oil production cuts by the Opec group's largest producer.

Oil-related activity during the three-month period to the end of September declined by 17.3 per cent, according to flash estimates released by the General Authority for Statistics (Gastat) on Tuesday.

Non-oil and government activity increased in the third quarter by 3.6 per cent and 1.9 per cent, respectively, on an annual basis.

The latest data comes as the Arab world’s largest economy continues to cut oil production to address volatility in the market and support prices.

Last month, Saudi Arabia announced that it would extend its voluntary oil cut of one million barrels per day for another three months until the end of December.

The latest reduction is in addition to a cut announced in April, which is in place until the end of December 2024.

The move seeks to “reinforce the precautionary efforts made by Opec+ countries with the aim of supporting the stability and balance of oil markets”, Saudi Press Agency reported at the time, citing an official Ministry of Energy source.

On a quarterly basis, the Saudi economy shrunk by 3.9 per cent amid a 8.4 per cent and 5.3 per cent decline in oil and government activity, respectively. Meanwhile, non-oil activity rose by 0.1 per cent during the period.

Saudi Arabia is focusing on boosting non-oil growth as it aims to diversify its economy, developing new projects in tourism and real estate.

These include the $500 billion Neom mega project along the Red Sea coast as well as Qiddiya entertainment city and the Diriyah Gate heritage development.

Saudi Arabia's non-oil economy expanded at a quicker pace in September as a sharp increase in output and the number of new orders drove business activity.

The headline Riyad Bank purchasing managers' index reading climbed to 57.2 in September, up from 56.6 in August, underpinning a quicker upturn in the health of the kingdom's non-oil private sector.

Saudi Arabia’s economy grew by 8.7 per cent last year, the highest annual growth rate among the world's 20 biggest economies, driven by a rise in oil prices and the strong performance of its non-oil private sector.

The kingdom benefitted from the rally in crude prices last year amid the Ukraine war.

Brent, the benchmark for two thirds of the world’s crude, rose close to $140 a barrel on supply concerns after Russia attacked Ukraine, boosting the revenue of oil-producing countries.

It has since pared those gains and is currently at about $90 a barrel.