DUBAI, March 31 (Reuters) – Saudi Arabia’s economy grew in the fourth quarter of last year at its fastest rate since early 2016 due to an expansion in the oil sector, while non-oil growth was sluggish, statistics agency data showed on Sunday.
Fourth-quarter gross domestic product grew by 3.59 percent from a year earlier. In the third quarter, annual growth was 2.5 percent.
“The oil sector led the recovery in the final quarter, reflecting stronger production, particularly at the beginning of the quarter,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
The Saudi economy has suffered in recent years because of low oil prices and austerity measures aimed at reducing a huge budget deficit.
In 2017, the economy shrank for the first time since the global financial crisis almost a decade earlier.
The data on Sunday showed how the kingdom’s economic recovery is still heavily reliant on oil output.
While the oil sector grew by almost 6 percent year on year, growth in the non-oil sector – key for Saudi Arabia’s efforts to diversify its economy – was 1.8 percent, down from 2.1 percent in the third quarter of last year.
“We expect the headline growth figure to moderate in 2019 as Saudi implements oil production cuts,” Malik said.
Saudi Arabia’s economy grew by 2.21 percent in 2018, government data showed in January, without breaking down fourth-quarter figures.
Last week, state-owned Saudi Aramco announced it had agreed to buy a majority stake in Saudi Basic Industries Corp (SABIC) from the Saudi sovereign wealth fund, Public Investment Fund (PIF), for $69.1 billion.
The deal could boost economic growth as the sovereign fund gains more firepower to proceed with its plans to create jobs and diversify the largest Arab economy beyond oil exports.
Dubai-based Arqaam Capital said in a research note on Sunday the acquisition is expected to boost credit growth, “as corporate activity on increased award momentum continues to improve particularly towards the end of the year and potentially on loans from Aramco to fund the purchase of SABIC”.
Malik said economic growth in 2019 would be impacted by how the PIF implements investments.
“Our assumption is that the SABIC sale will boost PIF’s investments in the second half of the year,” she said. (Reporting by Davide Barbuscia; Editing by Dale Hudson)