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Saudi Arabia’s gross domestic product fell in the first quarter of 2017 year-over-year, marking the first time the top oil exporter’s economy contracted after the 2014 oil price crash.
Government data revealed a 0.5 percent contraction between January and March – the first such occurrence since 2009. The KSA’s economy shrunk due to production cuts it made as part of a deal with the Organization of Petroleum Exporting Countries (OPEC) to limit bloc-wide output to 32.5 million barrels per day.
Saudi Arabia has consistently cut production more than required under the deal. Riyadh was due to limit production to 10.06 million barrels per day per its quota, but in February its reported production rate stood at just 9.8 million barrels per day.
The non-oil public sector shrunk by 0.1 percent, demonstrating the Kingdom’s resolve in cutting spending as oil revenues—the nation’s main source of income—remain low.
The non-oil private sector expanded by 0.9 percent, accelerating from a growth rate of 0.5 percent at the tail end of last year. It’s the fastest the private sector has grown since Q4 2015, Reuters said.
OPEC announced the production reduction deal back in November, hoping a 1.2 million barrel cut in output would jumpstart a market recovery. In May, the bloc announced that the cuts would be extended nine more months until the end of March 2018, but all price gains from the first quarter have been wiped out due to higher production from Libya, Nigeria, and the United States.
That Saudi Arabia is now tangibly—and publicly—feeling the sting from dutifully cutting production, we may see KSA strongarm some of the other less compliant OPEC members in the weeks to come, such as Iraq, which produced 4.424 million bpd in May compared to its 4.351 million bpd quota.
By Zainab Calcuttawala for Oilprice.com
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Zainab Calcuttawala is an American journalist based in Morocco. She completed her undergraduate coursework at the University of Texas at Austin (Hook’em) and reports on…