Non-oil economy of Saudi Arabia fell into technical recession

The non-oil economy of Saudi Arabia fell into technical recession for the first time in 80 years, which reinforces fears for the country, which is already experiencing difficulties from the low commodity prices. The non-oil sector of the economy has shrunk by 0.7% yoy in the first three months of 2016. This comes after a weak fourth quarter of 2015, data for which statistics agency revised to a decline in the sector to 0.5% yoy.

The data signal about the difficulties faced by Riyadh in rebalancing and diversification of the economy from the over-dependence from oil at a time when public spending is reduced. It seems that austerity have hit more serious than economists expected, stopping construction projects and recruitment.

So far, the oil sector is able to keep the Saudi economy out of recession, as higher production helped gross domestic product to grow by 1.8% annually in the fourth quarter of 2015 (revised to an increase of 3.6%) and 1.5% yoy in the first three months of 2016. The GDP indicator shows that overall growth turned negative in May, following the collapse of the non-oil sector has expanded, contracting by about 4% annually.

The main factor for the delay is the decline in public spending, as the government struggles with growing fiscal deficit after the fall in oil prices from 115 USD per barrel in 2014 to about 50 USD per barrel now. Cutting of the energy and water subsidies has led to accelerating inflation to 4.1%, which reflects the real income of households.

The consumer confidence decreased, which is reflected in the balance of payments data. The value of Saudi imports fell to 32.4 billion USD in the first quarter of 2016, which is 18.1% less compared to the same period of the previous year.

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