Saudi Arabia's economy falls 1.8% in the first quarter as oil sector shrinks

Non-oil activities increased by 2.8 per cent during the January to March period

A view of central Riyadh. The contraction of the Saudi economy was primarily driven by a 10.6 per cent decline in oil activities. Reuters

Saudi Arabia's economy contracted in the first quarter of the year on the back of a slump in the oil sector, despite an expansion in non-oil activities during the period.

The kingdom's real gross domestic product contracted by 1.8 per cent annually in the January-March period, according to flash estimates released by the General Authority for Statistics on Wednesday.

“This decrease was primarily driven by a 10.6 per cent decline in oil activities,” it said.

Non-oil activities increased by 2.8 per cent and government activities grew by 2 per cent on an annual basis.

Meanwhile, the kingdom's seasonally adjusted real GDP increased by 1.3 per cent on a quarterly basis, Gastat said.

“This growth was driven by a 2.4 per cent increase in oil activities, along with a 0.5 per cent growth in non-oil activities. Meanwhile, government activities declined by 1 per cent,” it said.

Saudi Arabia, the Arab world's largest economy, has been focusing on diversifying its economy away from oil as part of its Vision 2030 agenda.

The country, which posted a 0.8 per cent contraction in its GDP last year – mainly due to a sharp decline in the oil sector – has been reducing crude output along with other members of the Opec+ alliance as part of efforts to “balance the market”.

Brent crude, the benchmark for two thirds of the world’s oil, fell by about 10 per cent in 2023 on higher-than-expected supply from non-Opec countries and concerns about crude demand.

Prices have gained more than 10 per cent this year, an increase driven in part by supply worries due to geopolitical tensions, along with the Opec+ output cuts.

However, fears of weak demand have been pulling down prices, as expectations rise that the US Federal Reserve will not be cutting interest rates soon due to persistently high inflation and strong job numbers.

Brent was trading 1.04 per cent lower at $85.45 a barrel at 12.15pm UAE time on Wednesday.

West Texas Intermediate, the gauge that tracks US crude, was down 1.10 per cent at $81.03 a barrel.

Saudi Arabia, which has been focusing on developing its non-oil sector, also recently said it would adapt its Vision 2030 strategy to current economic and geopolitical challenges.

The kingdom would “downscale” or “accelerate” some of the projects being carried out under the programme, Saudi Arabia’s Finance Minister Mohammed Al Jadaan said at the special meeting of the World Economic Forum in Riyadh on Sunday.

While the kingdom could increase its GDP growth rate by boosting oil production, such an expansion would not be “quality growth, but quantity growth”, the minister said.