(Bloomberg) -- Saudi Arabia’s economy contracted for a third straight quarter following the kingdom’s decision to cut petroleum production, while non-oil growth eased to the slowest pace since the coronavirus pandemic.

The non-oil economy — a priority for the government as it looks to open up and transform the country — expanded by 2.8% in the first quarter on an annual basis, according to preliminary data published by the kingdom’s statistics office on Wednesday. That compared to 4.2% in the prior quarter.

Overall gross domestic product fell, as expected, by 1.8%, though that was an improvement from a contraction of 4.3% in the final quarter of 2023. Saudi Arabia, the world’s biggest oil exporter, lowered crude output to 9 million barrels a day around the middle of last year to prop up prices.

While that decision led to the $1.1 trillion economy experiencing one of its steepest slumps of the past two decades in 2023, the government emphasized it was focused on non-oil industries and businesses, which employ the vast majority of Saudis.

It’s investing hundreds of billions of dollars on everything from tourism to sports and semiconductors as part of Crown Prince Mohammed bin Salman’s Vision 2030 agenda. Still, rising debt levels may have led to consumption among Saudis stalling in the first quarter, according to Standard Chartered Plc.

“It might have been consumption, rather than investment, that contributed to the non-oil growth slowdown,” said Carla Slim, a Dubai-based economist at the bank. Higher household debt may have squeezed disposable income, she said.

The International Monetary Fund recently downgraded Saudi Arabia’s 2024 GDP growth forecast to 2.6% from 2.7% after the kingdom extended its oil-supply curbs along with other members of the OPEC+ oil cartel. The Washington-based lender raised Saudi Arabia’s outlook for 2025 from 5.5% to 6%, second only to India among major economies.

Brent crude has climbed more than 10% this year. But, at just above $85 a barrel, it’s lower than what Saudi Arabia needs to balance its budget, which has led to the government issuing more international bonds. The kingdom’s break-even oil price is about $108 at current levels of production and if the sovereign wealth fund’s domestic spending is taken into account, according to Bloomberg Economics.

Saudi Arabia has forecast budget deficits every year through 2026 as it scales up spending on mega projects with the aim of making the non-oil economy a bigger contributer to GDP. Some plans, including those related to the new city of Neom, are now being scaled back or delayed.

Still, Economy and Planning Minister Faisal Al-Ibrahim said this week that the country’s overall transformation plans are on track.

“The quarterly non-oil GDP growth printed softer than we were expecting, but there could be some revisions when the final data is released,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank PJSC. “Underlying drivers remain strong.”

(Updates chart, adds Standard Chartered quote.)

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