Saudi Arabia's economy shrinks due to reduced petroleum activity

Saudi Arabia's Gross Domestic Product (GDP) contracted in the second quarter of this year due to an 8.5% decline in petroleum activities.

Preliminary estimates from the General Authority for Statistics showed that the Saudi economy shrank by 0.4% in the second quarter compared to the same period last year.

The second quarter marked the fourth consecutive quarter of GDP contraction for Saudi Arabia, the world's largest crude oil exporter, which reduced its production by about 1.5 million barrels per day under the OPEC+ agreement. This reduction includes a voluntary cut of 1 million barrels per day.

According to official statistics, the main factor behind the negative economic growth in the second quarter of 2024 was petroleum activities, which declined by 8.5% year-on-year. Meanwhile, non- petroleum activities increased by 4.4% and government activities grew by 3.6% on an annual basis.

Earlier this month, the International Monetary Fund (IMF) revised its growth forecast for Saudi Arabia's economy downward due to the ongoing petroleum supply constraints by the OPEC+ group. The IMF now predicts that Saudi Arabia's economic growth rate will be only 1.7% in 2024, nearly one percentage point lower than the previous forecast of 2.6%.

The impact of this production cut is expected to continue into the next year. According to IMF projections, Saudi Arabia's GDP growth will reach 4.7% in 2025, which is 1.3% lower than the April estimate. The Saudi economy contracted by 0.8% last year due to reduced petroleum production.

Despite recent efforts by Saudi Arabia to reduce its economic dependency on petroleum, petroleum production and exports still constitute the majority of government revenue.