The first year of Saudi Arabia’s drive to reduce its oil dependence may end with the opposite result.

A flurry of cost-cutting measures will likely push the non-oil economy into recession, analysts say. That means that any overall growth in 2016 will be largely due to record crude output.

Efforts to manage the fallout from cheap oil gathered steam over the past two weeks. Policy makers have suspended bonuses and trimmed allowances for government employees. Ministers’ salaries were cut by 20 percent. The central bank also said it’s injecting about 20 billion riyals ($5.3 billion) into the banking system to ease a cash crunch.

Austerity will help Saudis reduce a budget deficit that reached 16 percent of gross domestic product last year. But it will also likely exacerbate the economic slowdown as consumption falls. A Bloomberg survey shows overall growth at 1.1 percent this year, with Capital Economics and BNP Paribas both predicting the first contraction since 2009.

“The hits to households are getting bigger and bigger,” said Jason Tuvey, Middle East economist at Capital Economics in London.

David Fuller's view

The severely troubled Middle East could only benefit if its major economies could manage to diversify sufficiently to gainfully employ their mainly subsidised populations.  They are the most numerous and likely losers following peak oil.  There are plenty of educated and privileged Saudi’s who could help in this endeavour but little modern tradition for significantly entrepreneurial efforts.

 The Saudi Arabia Tadawul All Share Index is short-term oversold and steadying near the January low.  The firmer oil price is now helping, as it did in January but will it rally enough to significantly improve the relative performance of the Tadawul All Share Index?  That is a big ask and the relative underperformance suggests that capital is being removed from the economy.