Saudi Arabia's economic output, the largest in the Arab world, dipped by 0.8% in 2023. This decline is primarily attributed to a significant contraction in the oil sector, the kingdom's historical economic engine. However, the report from the General Authority for Statistics (GAS) revealed a positive development – the non-oil sector witnessed a robust expansion of 4.4% year-on-year.
The oil sector's struggles stemmed from a 9% decline in activity throughout 2023. This decrease can be linked to global oil production cuts implemented by OPEC+, an alliance of major oil producers led by Saudi Arabia and Russia. These cuts aimed to stabilize oil prices but impacted the kingdom's oil revenue, a crucial source of income for the government.
Despite the overall economic contraction, the positive performance of the non-oil sector offers a glimmer of hope. This sector's growth reflects the success of Saudi Arabia's Vision 2030, a strategic plan aimed at diversifying the economy and reducing dependence on oil. The plan prioritizes investments in sectors like tourism, technology, and manufacturing.
The resilience of the non-oil sector is further emphasized by the performance in the fourth quarter of 2023. While overall GDP contracted by 3.7% year-on-year during this period, non-oil activities continued to expand at a healthy rate of 4.2%. This indicates a growing domestic economy less susceptible to fluctuations in the global oil market.
The positive trajectory of the non-oil sector is corroborated by the Riyad Bank Purchasing Managers' Index (PMI). This index, a gauge of business activity in the non-oil sector, remained well above the 50 mark that separates growth from contraction in February 2024. This suggests sustained momentum in the non-oil sector despite the overall economic slowdown.
Looking ahead, the International Monetary Fund (IMF) forecasts a rebound for the Saudi Arabian economy. The IMF projects a growth of 2.7% in 2024 and a significant acceleration to 5.5% in 2025. This optimistic outlook hinges on the continued expansion of the non-oil sector and a potential rise in global oil prices.
The Saudi government remains committed to Vision 2030 and is actively implementing reforms to bolster the non-oil sector. These reforms include attracting foreign investment, streamlining regulations for businesses, and developing human capital. The success of these initiatives will be crucial in determining the long-term sustainability and diversification of the Saudi Arabian economy.
