meed-logo

line1 line2 line3
SIGN IN / REGISTER

Saudi economy shows signs of weakness

3 August 2023

 

The Saudi economy is showing signs of weakness as negative growth in the oil economy overshadows the positive growth registered by the non-oil economy.

On 31 July, London-based Capital Economics said the Saudi economy was now technically in recession after the kingdom's General Authority for Statistics (Gastat) confirmed that the economy contracted during the second quarter of this year with the publication of its GDP Flash Estimates.

The estimates show that the Saudi economy contracted by 0.1 per cent during the second quarter of this year compared to the first quarter. Real GDP declined by 1.4 per cent in the first quarter compared to the fourth quarter of 2022.

The statistics look more encouraging on an annual basis. Real GDP increased by 1.1 per cent during the second quarter of 2023 compared to the same period in 2022. The non-oil economy grew by 5.5 per cent in the second quarter compared to the same period last year, while the oil economy decreased by 4.2 per cent compared to the previous year. During the first quarter of this year, growth was 3.8 per cent compared to the first quarter of 2022. 

Projects performance

The projects market has also performed strongly during the first half of the year. According to regional projects tracker MEED Projects, $42bn of deals were signed, the most on record. The previous high was the $28bn awarded during the first half of 2014.

Capital Economics said the technical recession was mainly due to reductions in oil production, despite the non-oil economy maintaining strong growth. The oil economy contracted by 1.4 per cent during the second quarter on a quarter-on-quarter basis, while the non-oil economy increased by 2 per cent.

Looking to the future, Saudi Arabia has adopted even more stringent cuts to its oil production in the third quarter, with an additional voluntary reduction of one million barrels a day in July and August.

Capital Economics expects this to counter further strength in the non-oil sector, leading to an anticipated contraction in GDP of about 3 per cent quarter-on-quarter in the third quarter. It also says there is a growing possibility that the upcoming Opec+’s Joint Ministerial Monitoring Committee meeting will result in the kingdom announcing the extension of this voluntary cut until at least the end of September.

If this occurs, the economy is expected to shrink by about 0.5 per cent over 2023. Excluding the global financial crisis and pandemic, this would mark the poorest GDP performance in over two decades.

IMF downgrade

The economic data for the second quarter was released shortly after the Washington-based IMF downgraded its real GDP growth projection for Saudi Arabia in 2023 to 1.9 per cent in its latest World Economic Outlook update.

The fund had in April anticipated a growth rate of 3.1 per cent for the year, adjusting this forecast to 2.1 per cent in June due to global macroeconomic concerns and uncertainties in oil demand.

The downward revision in Saudi Arabia’s growth forecast has broader implications for the wider Middle East region, which the IMF now expects to grow by 2.6 per cent in 2023, down from 3.1 per cent in its April forecast.

The slump in Saudi Arabia’s economic output contrasts strongly with its performance in 2022, when its growth was gauged at 8.7 per cent by the IMF, driven by a boost in oil revenue amid high energy prices. The kingdom also achieved its first budget surplus in almost a decade.

The signs of weakness in the Saudi economy coincide with reports of losses for the Public Investment Fund (PIF), which is driving much of the development of the non-oil economy in the kingdom. According to a report by Bloomberg, it made an investment activity loss of about $11bn in 2022, in sharp contrast to the $19bn profit reported the previous year. Despite the loss on investment activity made last year, PIF’s total assets grew from $676bn to about $778bn in 2022.

The PIF and its subsidiary companies are leading the development of a wide range of projects in the kingdom, including five official gigaproject developers. They are Neom, Red Sea Global, Roshn, Qiddiya and Diriyah.

Debt markets

The investment losses and the ramp-up of spending on domestic projects mean the PIF is likely to raise more debt. According to another report by Bloomberg, the fund has hired banks for a debut Islamic dollar bond sale to help finance its global spending plans. The fund could raise about $3bn, although the final size of the sukuk could be bigger depending on investor demand. It has mandated HSBC, Standard Chartered, Emirates NBD Bank and Al-Rajhi Capital for the offering.

As of the end of 2022, the fund’s borrowings amounted to $85bn. Earlier this year, it secured $5.5bn with a three-tranche green bond sale.

https://image.digitalinsightresearch.in/uploads/NewsArticle/11050401/main.gif
Colin Foreman

Register for MEED's guest program now to access this article.

Click here to register
Exclusive from Meed
Related Articles
  • Saudi drilling firm raises acquisition offer for Dubai rival

    16 September 2025

    Saudi Arabia-based ADES International Holding has increased its offer to buy Dubai-based, Oslo-listed rival Shelf Drilling to 18.50 Norwegian Krone ($1.88) per share, representing a 6% increase in the acquisition’s enterprise value.

    The offer was revised from an earlier deal of $1.42 per share or a total of $379.33m.

    ADES International Holding, a subsidiary of ADES Holding Company, signed a transaction agreement to acquire all issued and outstanding shares of Shelf Drilling through a cash merger, with ADES International Cayman (BidCo) also participating in the proposed merger.

    According to a joint statement, irrevocable commitments have now been provided by additional shareholders, including China Merchants, Anchorage Capital Group and Magallanes Value Investors, which, combined with ADES’ 17.9% stake in Shelf Drilling, represent 53.4% of the outstanding shares in the company.

    ADES International Holding raised its offer for Shelf Drilling after reassessing the company’s current market performance and revising its estimated annual cost synergies upwards by $10m, bringing the total to $50m-$60m.

    All other terms of the merger remain unchanged, along with the transaction timetable, with closing expected to occur in the last quarter of the year.

    Shelf Drilling is incorporated under the laws of the Cayman Islands, with its corporate headquarters in Dubai.

    In April this year, ADES International Holding secured a 10-year extension for one of its standard offshore jack-up rigs from Saudi Aramco, valued at approximately $290m.

    The contract for the offshore jack-up marks the re-entry of ADES International Holding into the Saudi offshore oil and gas market. The rig was among six jack-ups whose charters were suspended by Aramco last April.

    ADES International Holding has secured deployments for three of those jack-ups in Qatar, Thailand and Egypt, while the fourth was recently redeployed to Thailand.

    ADES International Holding also said it has increased its footprint since the start of 2025 by securing an offshore drilling job off the coast of Nigeria, marking its entry into West Africa.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/14676037/main0952.jpg
    Indrajit Sen
  • Oman tenders Rusayl power cable project

    16 September 2025

    State-owned Oman Electricity Transmission Company (OETC) has opened bidding for the construction of the cable connection from the Rusayl power plant (GT-5 & GT-6) to the Rusayl industrial grid station.

    The tender is open to local companies with tender board registration and valid commercial registration, the authority said.

    Bids must be submitted electronically, with hard copies of the bid bond and other documents delivered to OETC’s head office in Muscat.

    The last date to obtain documents is 23 September, with bids due by 7 October. 

    The new cable tender forms part of OETC’s strategy to expand transmission in line with industrial growth. The Rusayl power plant, located near Muscat, is one of Oman’s key natural gas-fired generation facilities and supplies electricity to the Main Interconnected System (MIS), the country’s largest grid.

    The adjoining Rusayl Industrial City is a major manufacturing hub hosting companies across chemicals, textiles, electrical materials and food production, which has driven steady growth in power demand.

    OETC is undertaking several major transmission projects to reinforce the MIS. These include the construction of new 132kV grid stations, network reinforcements around Muscat and the Masirah Island interconnection, which is valued at about RO72m ($187m).

    Local firm Bahwan Engineering won the main contract for this project and started construction earlier this year.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/14675720/main.jpg
    Mark Dowdall
  • QatarEnergy awards contract for 2GW Dukhan solar plant

    16 September 2025

    State-owned petroleum firm QatarEnergy has signed an agreement with South Korea’s Samsung C&T to build a 2,000MW solar power plant in Dukhan, about 80 kilometres west of Doha.

    The plant will double Qatar’s solar generation capacity, supplying up to 30% of Qatar’s total peak electricity demand once complete. It will use a solar tracker system and inverters, capable of operating in high temperatures, to maximise efficiency.

    The project will be delivered in two phases and is expected to be fully operational by mid-2029.

    The first phase of the Dukhan solar plant will deliver 1,000MW of power to the Kahramaa grid by the end of 2028. 

    The agreement was signed by Saad Sherida Al-Kaabi, minister of state for energy affairs and QatarEnergy CEO, and Sechul Oh, president and CEO of Samsung C&T.

    Senior officials from Kahramaa and executives from both companies also attended the ceremony.

    Under QatarEnergy’s Sustainability Strategy, the country plans to generate more than 4,000MW of renewable energy by 2030.

    Qatar’s first utility-scale solar photovoltaic (PV) facility, the 800MW Al-Kharsaah solar independent power producer project, has been operational since 2022.

    In August 2022, Samsung C&T won contracts for two other solar PV plants with a total combined capacity of 875MW.

    One of the solar plants, which has a capacity of 458MW, is located in Ras Laffan. The other plant is located in Mesaieed and will have a capacity of 417MW.

    Construction work on both projects was completed earlier this year.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/14674775/main.jpg
    Mark Dowdall
  • Saudi firm awards $121m of housing construction contracts

    16 September 2025

    Saudi Arabian real estate developer Al-Majdiah has awarded construction contracts worth SR454m ($121m) for housing projects in Riyadh and Jeddah.

    The contracts were awarded to the local firm Tatweej Contracting.

    The two projects are part of Al-Majdiah’s portfolio in collaboration with the state-backed National Housing Company (NHC).

    In an official statement published on the Saudi stock exchange Tadawul, Al-Majdiah said the contract value for the Adeem Al-Fursan project in Riyadh is SR298m ($80m).

    The project comprises the construction of 540 villas and townhouses.

    The Al-Fursan development in northeast Riyadh spans over 35 million square metres (sq m) and includes over 50,000 residential units.

    The contract value for the Khayala 1 project in Jeddah is SR155m ($41m). The project includes the construction of 528 residential units.

    The Khayala development is located in north Jeddah and spans nearly 1.6 million sq m. It includes 3,680 residential units.

    The contracts have a scheduled completion period of 36 months.

    UK-based analytics firm GlobalData expects the construction industry in Saudi Arabia to grow by 4% in real terms in 2025, before recording an annual average growth of 5.4% from 2026 to 2029.

    The industry’s output in 2025 will be supported by allocations as part of the kingdom’s 2025 budget, which includes a total expenditure of SR1.3tn ($342.7bn) for 2025.

    The industry’s output over the remainder of the forecast period will be supported by investments in transport, electricity, housing and water infrastructure projects.

    The residential construction sector is expected to grow by 3.8% in real terms in 2025 before recording an annual average growth rate of 6.4% over the remainder of the forecast period, supported by public and private sector investments in the residential sector to address the national housing deficit.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/14674464/main.jpg
    Yasir Iqbal
  • Oman LNG shortlists bidders for fourth liquefaction train

    16 September 2025

    Register for MEED’s 14-day trial access 

    Oman LNG has shortlisted contractors to bid for engineering, procurement and construction (EPC) works for a new processing train at its Qalhat liquefied natural gas (LNG) production complex in Sur.

    The LNG train will be the fourth at the Qalhat complex, located in the sultanate’s South Al-Sharqiyah governorate, Oman LNG announced last July. The new train will have an output capacity of 3.8 million tonnes a year (t/y) and is expected to be commissioned in 2029, raising Oman LNG’s total production capacity to 15.2 million t/y.

    According to sources, Oman LNG has issued the main EPC tender for the fourth LNG train project and invited the following contractors to submit bids:

    • Chiyoda (Japan) / Samsung C&T (South Korea)
    • JGC Corporation (Japan)
    • Saipem (Italy) / Daewoo Engineering & Construction (South Korea)

    MEED previously reported that Oman LNG hosted site visits in June for prequalified contractors, according to sources.

    Oman LNG has performed the preliminary engineering study for the planned fourth LNG train. It awarded US-headquartered KBR a contract to execute front-end engineering and design (feed) works on the project in November.

    Separately, in June, Oman LNG awarded Japan-based Kanadevia Corporation a contract to perform pre-feed work for a pilot methanation plant, and a detailed concept study for future commercial scaling of the facility.

    The proposed facility is expected to produce 18,000 normal cubic metres of e-methane an hour.

    The pilot plant will comprise three components: a seawater desalination unit, equipment for producing hydrogen via water electrolysis and a methanation system that combines hydrogen with captured carbon dioxide to produce e-methane.

    The agreement follows a memorandum of understanding that Oman and Japan signed in March 2024, covering collaboration in hydrogen, fuel ammonia and carbon recycling. 

    Oman LNG operations

    Oman LNG is a joint venture of the sultanate’s Ministry of Energy & Minerals, which holds the majority 51% stake, and foreign stakeholders.

    The remaining 49% is held by UK-based Shell (30%); France’s TotalEnergies (5.54%); South Korea’s Korea LNG (5%); Japan’s Mitsubishi Corporation (2.77%); Japan’s Mitsui & Company (2.77%); Thailand’s PTTEP, following the acquisition of Portuguese firm Partex (2%); and Japan’s Itochu Corporation (0.92%).

    Oman LNG presently operates three trains at its site in Qalhat, with a nameplate capacity of 10.4 million t/y. Following debottlenecking, total production capacity increased to approximately 11.4 million t/y.

    Oman LNG secured $2bn-worth of project financing in 1997 to set up its first LNG export terminal in the sultanate, the Qalhat LNG terminal, which was commissioned in 2000.

    On 1 September 2013, Qalhat LNG was integrated with Oman LNG to form a single entity.

    The terminal exports gas produced by state oil and gas producer Petroleum Development Oman from its central Oman gas field complex. Oman LNG’s customers are mainly based in Asia, although the company has been expanding its client base outside the continent in recent months.

    In April, Oman LNG announced the start of turnaround activities at the third LNG processing train, which has an output capacity of 3.3 million t/y. The third train commenced operations in 2006 and primarily processes gas produced at the Saih Nihayda field in central Oman.

    ALSO READ: TotalEnergies studies expansion of Marsa LNG project in Oman

    https://image.digitalinsightresearch.in/uploads/NewsArticle/14674434/main0940.jpg
    Indrajit Sen