Saudi economy set to grow 2% as oil output rises

Saudi Arabia's estimated 500,000 barrels per day increase in oil production is likely to boost growth in its oil sector by five percentage points, adding nearly two percent to year-on-year GDP growth, Capital Economics (CE) said in a new report.

The potential oil increase is part of the new deal agreed last Saturday, which allows OPEC and Russia to abandon their individual quotas that were initially agreed in November 2016 and, instead, move to a collective quota.

"The revisions to OPEC’s oil output agreement will lead to a rise in supplies from the Gulf over the coming months, providing a direct boost to economic growth. Higher production will, however, depress oil prices and thus limit spillovers to the Gulf’s non-oil sectors," the report said.

Given the expected growth in the oil sector, the consultancy revised its GDP growth forecasts for the Gulf economies for  2018 and 2019 by 1.0-1.5 percent. 

Meanwhile, the report said the increase in oil supplies will bring down oil prices back to $65 a barrel by year-end and to $55 a barrel by end-2019.

"On that basis, the value of the Gulf’s oil export revenues will actually fall over the next 12-18 months," it added.