Published On: Thu, Oct 5th, 2017

Saudi Arabia in Recession

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Saudi Arabia in RecessionSaudi Arabia has once again started to tumble as the oil sector stagnates and the government sector is hit by austerity policies designed to control a state budget deficit due to low oil prices. Saudi Arabia in recession is what the data shows since last weekend.

After dropping 3.8pc in the first quarter, gross domestic product, adjusted for inflation, shrank 2.3% from the previous quarter in the April-June period.

Economists generally define a recession as two straight quarters of shrinking GDP, measured by quarter-on-quarter rates. Saudi Arabia in recession was last recorded, a lighter one in early 2016.

A price-supporting agreement among global oil producers caused Saudi Arabia to reduce its oil output early this year, pulling down GDP. The oil sector shrank 1.8% from a year ago in the second quarter after a 2.3pc fall in the first.

The agreement is due to run to the end of next March but Opec and industry sources say they expect the output cuts to be extended further, so the Saudi economy may not get a boost from its oil sector for many more months.

Meanwhile, the government has abridged spending to avoid a financial crisis due to lower oil export revenues. As a result, the non-oil state sector grew just 1.0% from a year ago in the second quarter after shrinking 0.1% in the first.

Without much support from state spending, the private sector has struggled. It grew only 0.4% from a year earlier in the second quarter, slowing from growth of 0.9% in the first quarter.

The government has said it plans a stimulus package in the fourth quarter of the year, including state loans and other financial incentives, to encourage private sector investment and growth.

The size of the package is not clear, however, and fresh austerity steps to eliminate the budget deficit by 2020 are likely to weigh on growth. Saudi Arabia plans to introduce a 5% value-added tax on many goods in January, and authorities are considering a rise in domestic fuel prices.

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