Reuters: Signs of economic contraction in Saudi Arabia

RIYADH: Saudi Arabia may be forced to cut its estimates of expected economic growth, due to the repercussions of lower oil production and falling prices on economic activity, a Reuters report said on Wednesday.

Some economists are forecasting an economic contraction in Saudi Arabia, the world's biggest oil exporter, the agency said.

The Saudi central bank had forecast economic growth of at least 2 percent this year, but economists now expect marginal growth at best or a slight contraction that would be the second contraction for the Saudi economy in two years.

`` Much of this weakness is due to the impact of oil production cuts that will weigh heavily on GDP growth in 2019, '' the agency quoted William Jackson, chief economist for emerging markets at Capital Economics, as saying. Capital Economics forecast growth of 0.3% this year.

Monica Malik, an economist at Abu Dhabi Commercial Bank, said the kingdom's real GDP could contract by 0.2% based on production cuts. In February, the bank had forecast growth of 0.9%.

Saudi Arabia has recently maintained crude oil production, far beyond the OPEC-led supply agreement to support markets.

But worries about slowing oil demand and a weakening global economy have slowed demand growth, and the weakness of the global economy has kept pressure on prices, especially after the recent surge in the US-China trade war.

Dependence on oil
"Any forecast made more than a month ago will have to be updated in the light of indications that we are entering a global slowdown," said an economist in Riyadh who asked not to be named.

"Given all this, Saudi Arabia will have to adjust these figures downwards, especially if oil reaches $ 55 and then remains or falls below $ 50 in a global recession scenario or a general trade war," he said.

Oil prices have fallen by about a fifth since April, and Brent crude has fallen below $ 60 a barrel.

If prices remain low, fiscal policy is expected to become "less supportive and negatively impact non-oil activity," said Virage Fores, an emerging market economist at Capital Economics.

The Saudi economy is still contingent on oil and gas revenues, despite Saudi Arabia's 2030 vision, unveiled in 2016 by Crown Prince Mohammed bin Salman, to eliminate oil dependence.

Moody's credit ratings said oil and gas production still accounts for about 43 percent of real GDP, so production cuts in the last two years have intensified volatility in GDP growth.

In recent years, the Saudi economy - the largest in the Middle East - has been hampered by low oil prices and austerity measures aimed at reducing the relatively large budget deficit.

The International Monetary Fund (IMF) estimates that Saudi Arabia will post a fiscal deficit of 6.5% of GDP this year, well above the government's estimate of 4.2%.