Economy

IMF lowers Saudi growth forecast over oil output cuts

July 17, 2024, 8:56 AM

Estimates for 2024 and 2025 down
GDP growth also set to fall
Oil prices lower than required

The International Monetary Fund has lowered its forecast for economic growth in Saudi Arabia by almost an entire percentage point, as cuts in oil production continue to weigh heavily on the kingdom’s economy.

In its World Economic Outlook Update, the IMF reduced its forecast for Saudi GDP growth to 1.7 percent for this year, down from the 2.6 percent previously forecast in April, and the steepest downward revision of all major economies the Washington-based lender tracks.

Its estimate of GDP growth in the country for 2025 has also fallen, from a predicted 6 percent down to 4.7 percent.

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“This is entirely due to the impact of the production cuts,” Petya Koeva Brooks, the IMF’s deputy director of research, said in a news conference announcing the updates.

“Risks to the outlook are very much linked to what happens with the production and price of oil,” she said, although she added that the Saudi economy was benefiting from its massive investment projects.

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Saudi Arabia is in the middle of a trillion-dollar construction boom, with huge investments in giga-projects, as part of Crown Prince Mohammed bin Salman’s ambitious Vision 2030 programme to wean the country off a dependence on hydrocarbons.

However, the IMF said, explaining its growth forecast, Saudi Arabia needs oil prices to be around $96 per barrel to cover budgeted spending. Brent crude is currently trading at around $83 per barrel, well below that breakeven price.

The Opec+ group, led by Saudi Arabia and Russia, agreed last month to extend oil output cuts into 2025 as it seeks to shore up the market in the face of slowing demand and high US production. It will start easing more oil into the market from the fourth quarter, however.

The cuts, which began in 2022, caused a 0.8 percent contraction in the Saudi economy in 2023, because of the continuing dominance of oil and gas revenues in Saudi finances.

In the first quarter of 2024, Saudi Arabia’s economy contracted by 1.7 percent year on year as a result of the oil production cuts, although non-oil growth was up 3.4 percent over the same period. Brooks praised Saudi non-oil growth as “robust”.

The IMF cut its GDP growth forecast for the Middle East and Central Asia region as a whole to 2.4 percent this year, from 2.8 percent. Global GDP was predicted to increase 3.2 percent this year.