Saudi GDP to dip 0.5% in 2017 on lower oil output

The Saudi Arabian economy is expected to slip into a recession of 0.5 percent this year on compliance with OPEC’s oil production cuts, according to a recent report by BMI Research.

The Kingdom’s economy will return to modest growth of 1.3 percent in 2018, the report added.

"The oil sector will remain a drag on GDP growth throughout the end of 2017, and will not return to growth before H2 2018, weighed down by production cuts under the OPEC," BMI Research said.

“Given our expectations for compliance to remain strong throughout the end of the year, we expect the oil sector to remain a deep contractionary territory in H2 2017,” the firm added.

Saudi Arabia’s non-oil private sector continues to face severe headwinds, on the back of the government efforts to cut spending on a number of infrastructure projects.

Some improvements are expected in the private sector in H2 2017 and beyond, but these will not be sufficient for headline growth to be positive for the remainder of the year and to accelerate significantly in 2018.

Real gross domestic product (GDP) is forecast to slowly regain traction, after falling by 1.0 percent year-on-year, hurt by the oil sector, which accounts for over 40 percent of GDP and contracted by 2 percent in the first half.

"We also believe that the relaxation of fiscal consolidation measures at the end of June will be a boon for consumer spending. That said, progress will be only gradual, and insufficient to bring economic activity to positive growth over the whole year, the consultancy firm added.

Saudi Arabia has agreed with fellow OPEC and non-member oil producers to cut crude output by a combined 1.8 million barrels per day until March 2018.

However, the production cuts along with low oil prices and fiscal reforms have taken a toll on economic growth, with the Kingdom’s GDP contracting 1.03 percent in Q2 2017, falling for the second quarter in a row.