Saudi slowdown deepened in Q2 - Capital Economics
Middle East & North Africa Economics

Saudi slowdown deepened in Q2

Middle East Economics Update
Written by Virag Forizs

Our GDP Tracker suggests that Saudi Arabia’s economy slowed further in Q2, to just 1.0% y/y, as the drag from the oil sector intensified. We think that GDP growth will be even softer in the coming months and we’re comfortable with our below-consensus forecast of 0.3% for 2019 as a whole.

  • Our GDP Tracker suggests that Saudi Arabia’s economy slowed further in Q2, to just 1.0% y/y, as the drag from the oil sector intensified. We think that GDP growth will be even softer in the coming months and we’re comfortable with our below-consensus forecast of 0.3% for 2019 as a whole.
  • Saudi Arabia’s quarterly GDP data are published with a significant delay – figures for Q2 won’t be released until the end of September. Our GDP Tracker, which is constructed from monthly activity data, provides a more timely gauge of the Kingdom’s economic performance.
  • Our Tracker suggests that GDP growth slowed to 1.0% y/y over Q2 as a whole. That would be down from 1.7% y/y in Q1, as recorded in the official national accounts. (See Chart 1.) The Tracker has overstated the strength of growth in the past, so there is a risk that growth could be even lower than 1.0% y/y.
  • The slowdown can largely be pinned on the oil sector. (See Chart 2.) Oil production averaged 9.8mn bpd in Q2, remaining well below its peak of 11.0mn bpd in November. In year-on-year terms – which is what matters for GDP growth – oil output growth was negative for a fourth consecutive month in June, recording the sharpest pace of contraction in a year and a half.
  • Our Tracker points to non-oil sector growth holding steady in Q2. In June, point of sale transactions and ATM withdrawals – low level indicators of consumer-facing sectors’ health – contracted at their fastest rate since late-2017. (See Chart 3.) But private sector credit growth and non-oil imports were broadly unchanged between Q1 and Q2. (See Chart 4.)
  • Looking ahead, we think that Saudi Arabia’s economic slowdown has further to run over the remainder of this year. The extension of OPEC-agreed oil production cuts until March 2020 means that the drag from the oil sector is likely to intensify. And if oil prices stay low, as we expect, fiscal policy is set to become less supportive and weigh on non-oil activity. All told, we are comfortable with our below-consensus forecast for GDP growth of just 0.3% this year.

Chart 1: GDP & CE GDP Tracker (% y/y)

Chart 2: CE GDP Trackers (% y/y)

Chart 3: Sum of Point of Sale Transactions and
ATM Cash Withdrawals

Chart 4: Non-oil Imports

Sources: CEIC, Refinitiv, Capital Economics


Virág Fórizs, Emerging Markets Economist, +44 20 7808 4079, virag.forizs@capitaleconomics.com