RIYADH — The contribution of non-oil activity to Saudi Arabia’s GDP will remain strong this year and for the next two years, as the implementation of mega projects accelerates, a latest report has pointed out.
This projection by Moody’s comes despite a 6.5 percent decline in oil production from the start of the year through September.
The agency highlights the entertainment and tourism sectors as having long-term potential to diversify the economy. However, Moody’s predicts that the oil sector will continue to be the primary income source for the foreseeable future. They note that the economic benefits, particularly financial ones, from the non-oil economy will take time to materialize.
Moody’s Investors Service cautions that the increased government spending on economic diversification projects in Saudi Arabia carries risks. These include potentially widening the budget deficit in the coming years and weakening the current strong financial position if the government doesn’t maintain budget flexibility in response to oil price fluctuations.
Moody's report at a glance * 6.5% decline in Saudi oil production from the start of the year through September. * Saudi non-oil GDP expected to remain strong for the next two years. * Moody's projects Saudi economy to shift from a 2.5% GDP surplus in 2022 to deficits of 2% in 2023 and 2024. * Deficit projected to reach 3.5% of GDP in 2025 and 2026. * Average oil price forecasted by Moody's to range from $80-$85 per barrel in 2023-2024. * Oil price expected to decrease to between $50 and $70 per barrel in subsequent years. * World Bank revises Saudi Arabia's growth forecast from 2.2% increase to 0.9% contraction. * By 2024, World Bank predicts 4.1% growth for the Saudi economy. * Growth in GCC oil-exporting countries forecasted to slow to 1% in 2023, down from 7.3% in 2022. * MENA region growth expected to decelerate to 1.9% in 2023 from 6% in 2022. * World Bank predicts a sharp economic slowdown in the MENA region in 2023. * Growth rate for oil-importing countries in the region projected at 3.6% in 2023, down from 4.9% the previous year.
Based on Moody’s projections, the Saudi economy will shift from a surplus of 2.5 percent of GDP in 2022 to deficits of around 2 percent of GDP in 2023 and 2024, and then to a deficit of 3.5 percent of GDP in 2025 and 2026.
Responding to the Saudi Ministry of Finance’s preliminary 2024 budget statement, which anticipates increased government spending in the coming years, Moody’s points out that the 2024 spending priorities include accelerating economic diversification projects. These projects aim to reduce Saudi Arabia’s vulnerability to economic transformation risks. In the long term, Saudi Arabia’s Vision 2030 envisions a transition away from carbon-based energy sources.
The Saudi Ministry of Finance, in its preliminary 2024 budget statement, expects a modest fiscal deficit from 2023 to 2026, tying the increased spending to the government’s ambitious economic diversification plan.
Moody’s fiscal deficit forecasts are based on several assumptions. These include an average oil price ranging from $80 to $85 per barrel in 2023-2024, which will then gradually decrease to between $50 and $70 per barrel in the subsequent years, assuming a steady increase in oil production.
Conversely, The World Bank has revised its growth forecast for Saudi Arabia’s economy from a 2.2 percent increase in June to a 0.9 percent contraction. This revision is partly due to Saudi Arabia’s decision to reduce oil production in response to declining oil prices. However, by 2024, the World Bank expects the Saudi economy to grow by 4.1 percent.
The World Bank also forecasts that growth in the oil-exporting countries of the GCC will decelerate to 1 percent this year, a significant drop from 7.3 percent in 2022. The broader region, encompassing the Middle East and North Africa, is expected to see growth slow to 1.9 percent in 2023, down from 6 percent in 2022.
In its report titled “Achieving Balance… Jobs and Wages in the Middle East and North Africa Region When Crises Occur,” the World Bank predicts a sharp economic slowdown in the MENA region in 2023. This pessimistic outlook is attributed to “reduced oil production, given low crude prices,” “tightening global financial conditions,” and “rising inflation.”
The analysis indicates that challenging global financial conditions and high inflation rates continue to impede economic activity in the region’s oil-importing countries. The growth rate for these countries is projected to be 3.6 percent in 2023, down from 4.9 percent the previous year.