Saudi GDP achieves its strongest growth since 2012 as oil prices rise

The Saudi economy's growth is the result of higher output from oil activity, which grew by 12.9% compared to the second quarter, according to the latest report from the General Authority of Saudi Arabia for Statistics (GASTAT). Meanwhile, non-oil activities slowed their growth to 6.2% in the third quarter from 11.1% in the second quarter. Production from government activities increased by 2.7% compared to 0.4% last quarter.

The growing global demand for oil in 2021 is the main factor behind this economic growth. So much so that Saudi Arabia's energy minister, Prince Abdulaziz bin Salman, declared last month that "the switch from gas to oil could mean a demand of 500,000 to 600,000 barrels per day (bpd)", alluding to shortages in the energy sector and new demand from governments for oil. This shortage is causing oil prices to soar and, consequently, the Saudi Arabian economy to grow.

The International Energy Agency (IEA) warns that global oil demand could reach 99.5 million barrels per day by 2022, with consequences for prices. This energy crisis could fuel inflation and slow the global recovery from the COVID-19 pandemic, the IEA reports.

The Organisation of Petroleum Exporting Countries (OPEC+) currently has the highest global oil demand growth figures among the three major industry forecasting agencies: the US Energy Information Administration (EIA) and the IEA. According to OPEC+, oil in 2021 is expected to increase by 5.95 million bpd and estimates that global demand should average 99.82 million bpd by the fourth quarter. The IEA offers an estimate of 5.3 million bpd, while the EIA estimates about 5 million bpd.

This demand for energy is driving oil prices up by leaps and bounds, so much so that in the last twelve months the price of a barrel of OPEC oil has risen by 92.18%. As of today, the average price per barrel is $81.89. Other factors behind the recent rise in energy prices have been limited investment in hydrocarbons and infrastructure, low inventories, and the lifting of pandemic shutdowns.

Central to the rise in oil production has been OPEC's high production quotas, in connection with the agreement reached this past July to increase oil extraction by 400,000 barrels per day each month from August to September. Alongside this, the further easing of restrictions caused by COVID-19 and the relaxation of Saudi fiscal policy have also contributed to the increase in production.

Despite this increase in oil production, Saudi Arabia is aiming to achieve CO2 neutrality by 2060. This was announced by Saudi Prince Mohammed bin Salman, who has set his sights on reducing CO2 emissions by 278 tonnes, according to the Saudi news agency SPA.

Meanwhile, the reported decline in non-oil activities and governmental activities is slowing down the achievement of the goals of Saudi Vision 2030, the strategic framework to reduce Saudi Arabia's dependence on oil and diversify its economy. 

However, this increased production is expected to reduce Saudi Arabia's budget deficit, as announced by the Saudi Press Agency and Finance Minister Mohamed al-Jadaan. He argued that the deficit was reduced from 15.8% to 4.5% in 2019 and is expected to be reduced further this year.