Bad decisions always bite: labor crackdown, consumer borrowing suggested as potential reasons for Saudi Arabia's slowed economic growth
Saudi Arabia’s economic growth eased to an annual rate of 4.7 percent in the first quarter of 2014 as labor market measures curbed activity in some sectors, but the expansion was still stronger and more widespread than growth a year ago.
Economic growth in the Kingdom reached 5 percent in October-December, the fastest pace since the third quarter of 2012.
“It is certainly the change in the labor market affecting the annual growth,” said Fahad Al Turki, head of research at Jadwa Investment in Riyadh. “(But) the quality of growth is improving. It’s spread over more sectors than the top three.”
On a quarterly basis, inflation-adjusted gross domestic product growth accelerated to 3.4 percent, the fastest clip in a year, from 2.7 percent in the previous quarter, the Central Statistics Office data show.
Economic growth is usually at its most robust early in the year, when the weather is at its most favorable and few public holidays halt work.
Overall, the non-oil private sector growth slowed to 4.4 percent year-on-year from 6.2 percent in the previous quarter, the slowest pace in at least a decade.
Around a million foreign workers left Saudi Arabia last year after a crackdown on visa irregularities as a part of labor reforms aimed at putting more Saudi nationals into jobs.
Another reason for the slowdown may be that households balance sheets are stretched after a surge in consumer borrowing over the past few years, said William Jackson, emerging markets economist at Capital Economics in London.
In the first quarter, growth in all three sectors that relied on cheap foreign labor — construction, retail and transport — slowed markedly from a year ago.
Construction output growth shrank to 5.6 percent in January-March, the slowest pace since end-2012 and down from 9.9 percent in the final three months of 2013. Manufacturing, however, grew 6.5 percent, the fastest pace in two years and up from 4 percent in October-December, as new investment projects come on stream.
Oil sector output, which accounts for almost half of the $748 billion Saudi economy, quickened to an annual 5.8 percent in the first quarter, the fastest rate since mid-2012, from 4.1 percent in the previous three months.
“This effect is likely to be weaker in the third and fourth quarter as the base is higher,” said Khatija Haque, head of MENA research at Emirates NBD. “Non-oil growth should pick up in the coming quarters, however.”
- What's its secret? Kuwait sustains non-oil growth for two years
- The reliable consumer: China on track to become biggest export market for GCC by 2020
- After the GCC 'happy' summit, is a customs union closer to reality?
- A bleak record: Turkey comes second in OECD income inequality list
- ًA safe bet? Why the ME's businessmen are chasing after St.Kitts and Nevis' citizenship