Saudi Arabia has weathered the
lower-for-longer oil environment far better than some of its fellow OPEC members.
But that doesn’t mean other parts of its economy waded through the last few months completely unscathed.
The state statistics office reported that, overall, the kingdom’s first quarter GDP grew by 1.5% compared to the prior year, and the fourth quarter rate was revised down to up 1.8% from up 3.6%. That’s the lowest growth since the first quarter of 2013, according to Reuters.
The oil sector grew by 5.1% year-over-year in the first quarter, but the non-oil sector shrank by 0.7% — the weakest reading in at least five years. And this could be a concerning sign as the Saudis push forward with their plan to differentiate away from the oil sector.
Looking under the hood of the non-oil sector data, the government sector contracted by 2.6% and the non-oil private sector posted growth of just 0.2% year-over-year in the same time frame — the lowest in about 25 years, according to Capital Economics. (Although, this could be partially attributed to the fact that the first quarter in 2015 was “unusually strong,” according to Reuters.)
Still, this last point seems to contrast with the recent “whole economy” PMI number, which covers the entire non-oil private sector. For the first half of the year, the index came in around 54-55 — well above the 50-threshold, which theoretically divides expansion from contraction.
“However, we shouldn’t take the PMI reading at face value. While the PMI is useful as a gauge of economic sentiment and as a guide for the underlying economic trend, its relationship with the official GDP data is not great,” noted Capital Economics Middle East economist Jason Tuvey in a note to clients on Tuesday.
In other Saudi data news, Tuvey previously stated in a separate note to clients last week that the kingdom’s consumption spending started to sputter in 2016. The “trade, hotels, and restaurants” sector — which can be seen as a proxy for consumer spending — in the industry breakdown from first quarter GDP data shrank by 0.8% year-over-year.
As for why there’s been some weakness, here’s what he said:
“There are two main factors behind the current weakness of consumer spending. First, the boost to spending from last year’s bonus has faded. Second, hikes to energy and water tariffs at the start of this year have pushed up inflation, which has eroded households’ real incomes. The headline rate jumped from 2.3% y/y to 4.3% y/y between December and January and remains high.”
Overall, Tuvey suggests that the Saudi economy could end up growing by just 0.3% in 2016.
“The IMF and consensus forecasts, for growth of 1.2% and 1.0% respectively, look too optimistic. And while a recovery should get underway in 2017-18, we think it is likely to be slow-going,” he suggested.
Brent oil is stronger by 2.1% at $47.27 per barrel as of 10:24 a.m. ET.