(Bloomberg) — Saudi Arabia’s economy contracted 7% in the second quarter from a year earlier as citizen unemployment hit its highest level on record, illustrating the damage wrought by the oil market turmoil combined with the coronavirus pandemic.
The oil sector shrank an annual 5.3%, while the non-oil sector declined by 8.2%, according to data released on Wednesday by the statistics authority. The non-oil private sector — the engine of job creation — contracted by more than 10%. Labor statistics released at the same time showed that citizen unemployment rose to 15.4% during April to June, the highest level recorded in data that goes back two decades. That, despite a government stimulus program that covered 60% of salaries for many Saudi workers.
The world’s largest oil exporter is facing a dual crisis this year as the pandemic, energy output cuts and lower crude prices combine to derail a fragile economic recovery from the last oil-price rout. The International Monetary Fund expects output to contract 6.8% this year, followed by 3.1% growth in 2021.
The worst-hit areas of the economy in the second quarter were, unsurprisingly, those hurt by a series of coronavirus curfews and shutdowns that were implemented in March and gradually lifted from the end of May. A sector that combines wholesale, retail, restaurants and hotels contracted by more than 18%. Finance, insurance and business services, on the other hand, shrank by just 0.3%.
Conditions remain tough even though coronavirus restrictions have eased. Government spending is constrained by lower oil revenue, while economists predict that a rebound in consumer activity after the lockdown ended is likely to be short-lived as austerity measures like the tripling of value-added tax pressure household budgets.
If the spike in unemployment sticks, it would represent a major setback for Crown Prince Mohammed bin Salman, whose economic transformation plan is predicated on creating enough private sector jobs for the kingdom’s youthful population. Saudis ages 20 to 29 made up 63.1% of unemployed citizens in the second quarter.
Unusually, female labor force participation jumped by more than five percentage points — the biggest move on record — to reach 31.4%, accelerating a trend of more women seeking jobs as social restrictions loosen in the conservative Islamic kingdom. That drove up overall labor force participation, despite a slight decline in male participation.
A demographic bulge of young people requires about 150,000 new jobs per year, a number “too large to be supported by public-sector employment and petroleum revenue alone,” S&P Global Ratings said in a statement last week.
Even so, S&P affirmed the kingdom’s sovereign credit rating at A-/A-2 with a stable outlook, noting its relatively strong buffers, including more than $400 billion in net foreign assets held by the central bank.
(Updates with charts and more detailed data in second, fifth and sixth paragraphs.)
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