Saudi Arabia’s economy shrank 4.2% in the third quarter from a year earlier, government data showed on Tuesday, but the contraction was smaller than the second quarter when the economy was reeling from coronavirus-linked lockdowns, Reuters reports.
The economy expanded by 1.2% on a seasonally-adjusted quarter-on-quarter basis in the third quarter from a contraction of 4.9% in the previous quarter, Saudi Arabia’s General Authority for Statistics said.
“A sequential pickup in economic activity was expected in the third quarter with the easing of lockdown measures and given the pent-up demand,” Monica Malik, chief economist at Abu Dhabi Commercial Bank, told Reuters.
“However, the pace of recovery would have been dampened by the increase in the VAT rate.”
Meanwhile, Fitch Ratings has affirmed Saudi Arabia’s credit rating at ‘A’ and revised the outlook to negative from stable amidst the COVID-19 pandemic and the oil price shock.
Despite the negative outlook, Saudi Arabia’s ratings have demonstrated “notable resilience” with three consecutive rating affirmations by the three major credit rating agencies since the onset of the pandemic in March of this year, according to a press release on Monday and reported by Zawya.
Creating headwind for the economy is lower oil prices, and Saudi Arabia has worked throughout the year as de facto leader of the OPEC+ group of producers to ensure compliance with supply cuts to shore up prices on international indices. The outlook for oil prices is steady in the near- to middle-term.
The announcement yesterday of positive initial results from a coronavirus vaccine developed by Pfizer, and other vaccines currently being developed, is good news for oil prices. Widespread vaccinations are expected to boost international passenger transportation and oil consumption, “but the first significant impact will not be felt until well into the second half of 2021, based on futures price movements on Monday,” analyst John Kemp writes in Reuters.
