Saudi Arabia’s economy contracted at a steeper pace during the third quarter of this year when compared with the previous quarter according to Capital Economics’ latest GDP tracker for the kingdom.

The London-based firm says the weakness in the Saudi economy is largely concentrated in the oil sector, which contracted about 3 per cent during August on a year-on-year basis. Meanwhile, the non-oil sector has struggled to gain momentum and has shown little sign of improvement on the growth of 2 per cent that it registered in the second quarter of this year.

Looking forward, Capital Economics says the worst of the downturn may be over, although the recovery will be slow. The firm expects the Saudi economy to grow at 0.1-1.3 per cent in 2018-19.

Economic reforms including VAT and further subsidy cuts are due to be introduced and these measures will drive up inflation reducing disposable incomes and dampening consumer spending.

The Washington-based IMF said in early October that Riyadh should aim to balance its budget by 2022 rather than the 2019 target date set out in the kingdom's fiscal balance programme.

The IMF projects the fiscal deficit to narrow substantially in the coming years. It is expected to decline from 17.2 per cent of GDP in 2016 to 9.3 per cent of GDP in 2017 and to just under 1 per cent of GDP by 2022.