Analysis-Oil cut extension raises risk of Saudi economic contraction this year
DUBAI - Saudi Arabia faces the risk of an economic contraction this year following its decision to extend crude production cuts, highlighting its still heavy reliance on oil as reforms to diversify are slow moving.
Monica Malik, chief economist at Abu Dhabi Commercial Bank, now sees Saudi gross domestic product contracting 0.5% this year, revising her forecast from last month of 0.2% growth this year, while Alexander said non-oil growth would need to average about 5% this year to maintain growth. Saudi Aramco, 90% government owned and awash with cash after last year's boom, said last month it would fork out a near $10 billion dividend to shareholders in the third quarter from its free cash flow - the first of several extra payouts on top of its expected more than $150 billion base dividend for 2022 and 2023 combined.
"Certainly, we see no signs that the Public Investment Fund's acquisition streak is cooling," RBC Capital Markets said in a note.Still, reforms and state-led investment have seen the share of the non-oil sector's contribution to GDP rise to 44% of GDP last year, up just 0.7 percentage point from 2016.
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