New York: Saudi Arabia’s non-oil economic growth accelerated in the second quarter, a sign that the economy is shrugging off the effects of austerity measures that followed the collapse of crude prices five years ago.
Non-oil gross domestic product expanded almost 3 per cent, the fastest pace since 2015. The kingdom’s oil GDP shrank due to production cuts as Saudi Arabia sought to stabilise crude prices. That caused overall economic growth to slow to 0.5 per cent, according to official data released on Monday.
The absence of fiscal measures to cut spending and bolster government revenue, as well as the “strengthening of investment momentum” are the key reasons for the improvement of business sentiment, said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
The biggest Arab economy is slowly recovering from the 2014 oil-price crash and a slew of policy changes that hit businesses hard, including subsidy cuts and a value-added tax. Private-sector confidence was also hurt by a declared crackdown on corruption in November 2017 that ensnared dozens of billionaires and officials in the Ritz-Carlton hotel in Riyadh.
But while the recent improvement in non-oil growth is encouraging as Saudi Arabia tries to diversify the economy, the overall picture still shows that oil is king.
Saudi Arabia has led efforts to stabilise the oil market by ending years of animosity with Russia in 2016 and joining forces to prop up prices. The price of benchmark Brent crude averaged just under $67 (Dh246) a barrel in the second quarter of 2019, compared with nearly $80 during the same period last year.
Output cuts by Opec and its partners continue to weigh heavily on the economy. Although it was dealt another blow this month after the biggest attack ever on its oil industry, the kingdom is quickly reviving production.