Saudi Arabia’s economy contracts first time in 8 years in Q1

According to media reports, Saudi Arabia’s Gross Domestic Product (GDP) decreased by 0.5% in the first three months of this year on a yearly basis. This was the first time in eight years the country’s economy contracted due to a shrink of 2.3% in the oil sector caused by the country’s involvement in OPEC’s oil cut deal.

However, the country’s non-oil private sector expanded by 0.9% in Q1 on a yearly basis, which was the highest level of more than a year, while the non-oil government sector of the economy contracted slightly by 0.1%.

The country’s private sector had previously suffered from official measures such as rising domestic energy prices and the government’s not paying its debts to companies in time. However, the sector started to strengthen late last year once the government began to pay its debts to the companies in a more timely manner.

The economic outlook for the rest of 2017 is uncertain due to a 5% value-added tax, which will start to be implemented in early 2018. Not only implementation of the VAT, but also the extension of oil cut deal is thought to have further effects on the country’s oil sector.