- Oil Cuts: Saudi’s Economy Contracts for Two Consecutive Quarters
Saudi Arabia’s economy contracted in the second quarter following OPEC and non-OPEC oil cuts agreement reached in November 2016.
The economy contracted by 1 percent in the second quarter from the same period a year ago when it grew at 0.9 percent, according to the official data. The oil-rich economy had contracted 0.5 percent in the first quarter of the year, making it two consecutive quarters in a row. The first since the global financial crisis.
Similarly, the oil sector contracted by 1.8 percent in the second quarter, impacting the overall economic activity. The contraction has been attributed to oil cuts agreement reached by OPEC in November.
Also, the data showed non-oil GDP, the largest employer of labour, expanded just below 1 percent in the quarter, mainly boosted by the government sector which grew at a 1 percent rate in the second quarter. The non-oil industries are still struggling to shore up public finances and overhaul the economy.
“There is very little capital spending going on in Saudi Arabia at the moment,” Mohamad Al Hajj, an equities strategist at the research arm of EFG-Hermes in Dubai, told Bloomberg TV in an interview.
Construction sector plunged 1.6 percent in the second quarter, after previously declining by 3 percent in the first quarter.
However, petroleum refining grew at 5.8 percent rate in the quarter. Complementing overall economic activities to curtail slack in the economy.
“What we’re seeing is stagnation in non-oil activity,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank. “Second-quarter data show still very lackluster demand” even after the government reversed a decision to cut or freeze bonuses and allowances for state employees, she said.