Saudi Arabia’s economy is set to slow sharply this year from last year’s growth of 8.7% due to oil production cuts that the world’s top crude exporter is implementing in a bid to “stabilize the market.”
The kingdom saw its economic growth forecast for 2023 cut by the largest economies in Updating The World’s Economic Outlook From the International Monetary Fund (IMF) this week.
Significantly lower Saudi GDP growth will also weigh on regional economic growth in the Middle East and Central Asia region this year, the IMF said.
While the Saudi growth outlook for 2023 decreased by 1.2 percentage points from the IMF’s April outlook, Russia’s economic growth rating improved.
Saudi Arabia’s partner in the OPEC + deal, Russia, saw its growth projection revised upwards by 0.8 percentage points to 1.5%, “reflecting strong data (on retail trade, construction and industrial production) pointing to a strong first half of the year, with a large fiscal stimulus driving that strength.”
Not only is Saudi Arabia taking on a large share of the burden in the OPEC+ cuts, its voluntary unilateral production cut of 1 million barrels per day (bpd) is weighing on its economic growth prospects, taking into account the large share of oil in its GDP and export revenues.
Saudi Arabia said at the beginning of June that it would cut production by 1 million bpd in July at about 9 million bpd. The cut was later expanded also in August.
Lower exports and lower oil prices are already reducing Saudi Arabia’s oil export revenues-the mainstay of its budget revenues that account for about 80% of total export revenues. Related: Oil Prices Fall As Market Awaits Fed Interest Rate Decision
Saudi Arabia’s oil revenues plunged in May lowest level since September 2021official data showed on Tuesday that the kingdom cut shipments while oil prices were significantly lower than in spring last year. Oil revenues fell by 37.7% year-on-year to $ 19.2 billion (72 billion Saudi rials) in May 2023. This compares with $ 30.8 billion (115.5 billion rials) in oil revenues for May 2022, when Brent crude oil prices averaged $ 113 a barrel after the Russian invasion of Ukraine, data from the General Authority for Statistics show.
This year in May, The price of Brent crude oil averaging around $ 75 a barrel, which, combined with lower Saudi oil exports and lower production as part of the OPEC+ deal, dragged Saudi oil revenues to a 20-month low.
The share of oil exports in the value of total exports decreased from 80.8% in May 2022 to 74.1% in May 2023, official Saudi data showed.
In May, Saudi exports fell to less than 7 million bpd for the first time in many months. Crude shipments could fall further as Saudi Arabia is now reducing its output by an additional 1 million bpd in July and August.
So it is not surprising that the IMF this week lowered its forecast for the Saudi economy this year by the largest percentage among major developed and emerging economies. Saudi Arabia’s economy is now expected to grow by 1.9% this year, down 1.2 percentage points from the IMF’s April estimate. Next year, economic growth is expected at 2.8%, down 0.3 percentage points from April’s estimate.
“The reduction for Saudi Arabia for 2023 reflects the production cuts announced in April and June in accordance with an agreement through OPEC+ (the Organization of the Petroleum Exporting Countries, including Russia and other non-OPEC oil exporters), while private investment, including from the implementation of the giga-project, continues to support strong non-oil GDP growth,” the IMF said.
Back in early May, the IMF said Saudi Arabia needed oil prices at $80.90 for barrels to balance his budget this year.
Saudi Arabia’s efforts to support oil prices with major production cuts it will slow down the economyit could even shrink this year and become one of the worst performers among the G20, from the fastest-growing economy in this group last year, analysts say.
By Tsvetana Paraskova Oilprice.com
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