According to data released by the General Authority of Statistics, Saudi Arabia’s GDP declined by 1% in the first quarter of 2020, a government agency, on June 30th.
The oil sector, the largest component of the GDP, contracted by 4.6%. This contraction reflects the kingdom’s commitment in December through OPEC to deepening production cuts in response to weak market conditions predating the pandemic’s emergence.
The non-oil sector expanded by only 1.6%, which is a 3.8% decline compared to the previous fourth quarter of 2019. This strong performance of the non-oil sector in the last quarter of 2019 was led by “wholesale and retail trade, restaurants and hotels” and “transport, storage and communications” sectors—which had expanded by 4.8% and 4.1%, respectively.
The strict lockdowns in place in April-June hit these sectors the hardest. Both sectors will also suffer in the third quarter of 2020 from the recently announced cancellation of the annual Hajj pilgrimage, starting in late July, to all but 1,000 residents.
Any recovery in consumer spending will be limited by the threefold increase in value-added tax (VAT) to 15% that came into force on July 1st.
The Economist forecasts a 5.2% full-year fall in real GDP in 2020, followed by a 2% growth in 2021 as oil production increases and domestic economic activity rebounds.
Source: The Economist