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Saudi Arabia’s growth is expected to slow to 2.1% this year due to production cuts, according to the International Monetary Fund (IMF), though the Kingdom’s current account surprise is at a decade-high and inflation has been contained. The IMF’s new growth projection for Saudi Arabia this year is lower than its May forecast of 3.1% growth, and comes after Riyadh surprised the markets with another 1 million barrel-per-day voluntary oil output cut on June 4.
“Non-oil growth momentum is expected to remain strong,” the IMF said in a Wednesday statement.
“While the April 2023 OPEC+ production cuts would reduce overall real growth to 2.1 percent in 2023, non-oil growth is expected to average 5 percent in 2023 and remain above potential as strong consumption spending and accelerated project implementation boost demand,” the statement continued. Last year, the Saudi economy enjoyed 8.7% growth on the tailwinds of high oil prices, leading to the first budget surplus in nearly a decade. Oil revenues for the Kingdom hit $326 billion last year. In May, the IMF projected that Saudi Arabia required oil prices of $80.90 per barrel to balance its 2023 budget. That figure represents a lower break even price than in 2021 and 2022, but higher than the average breakeven for the two decades prior to 2019. When it released its report in May, the IMF said it expected the Kingdom to run a budget deficit of 1.1% of GDP this year due to production cuts.
In its latest statement released on Wednesday, the IMF said that while the April 2023 OPEC+ production cuts would reduce the Kingdom’s overall real growth this year, non-oil growth was strengthening and expected to average 5%, while headline inflation was set to be contained this year. The IMF noted that lower oil revenue could shift the fiscal surplus back to deficit for this year. “The Saudi economy is booming, spurred by high oil prices, a strong pick up in private investment and reform implementation. The current account surplus has reached a decade-high surplus and inflation is contained,” the IMF said in a statement, describing the risk to outlook as “balanced”.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com