Oil prices edge down, recession fears back in focus

RIYADH: Saudi Arabia’s economy is estimated to become 60 percent more resilient to oil price shocks by 2030, according to a study issued by the King Abdullah Petroleum Studies and Research Center, an advisory think tank entity based in Riyadh.

“What we mean by resilient is how this economy can withstand shocks, and to recover quickly and rapidly after the shock to the same level of growth or even better, and we found that by implementing the policies of Vision 2030 the Saudi economy will be 60 percent more resilient to shocks by 2030,” Hossa Almutairi, KAPSARC researcher and a co-author of the study told Arab News.

Almutairi stressed that an advanced economy is driven by household spending, and when households have a clear vision toward the future, they invest in it even more.

“In a more stable economy, you have a stable income. It’s harder to plan for the future if you don’t know what will happen, and you are uncertain about the future,” she said.

Almutairi believes that a stable economy will also result in a growing demand for businesses, saying, “It’s a continuous cycle that will affect households’ income and job creation.”

The study stated that economic reforms will make Saudi households’ consumption 40 percent less volatile.

According to a report issued by the International Monetary Fund, the Kingdom is likely to be one of the world’s fastest-growing economies this year, thanks to sweeping pro-business reforms and a sharp rise in oil prices as well as production power recovery from a pandemic-induced recession in 2020.

Gross domestic product is expected to expand by 7.6 percent, the fastest growth in almost a decade, the IMF reported.

According to Almutairi, a major part of this growth was due to growing oil revenues as well as an increase in government spending.

“This growth is led by the activity in the oil sector, and also government spending increased by 10 percent in the first quarter of 2022, compared to the same period in 2021,” she said.

Oil revenue for the first half of 2022 was SR434 billion ($115.7 billion), compared with SR248.7 billion in the first half of 2021, an increase of 75 percent, according to Zawya.

Non-oil revenues have also increased by 5 percent this year, said Almutairi, which aligns with the Kingdom’s long-term economic diversification aims.

“The non-oil sector contributed to the growth and you see that non-oil revenue increased by 5 percent,” she said.

According to Almutairi, oil will remain a major economic resource for the Kingdom as the economic reforms of Saudi Vision 2030 are not about abandoning oil but rather on focusing on diversifying the economy.

“In the most ambitious scenario for climate change, which is the net zero scenario by the International Energy Agency that was released last year, oil will remain at 24 million barrels per day in 2050. So the world still needs oil, and Saudi Arabia has among the lowest costs of producing oil. My point is, oil will be part of the economic activities,” she said.