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UPDATE 1-Saudi economic growth of 0.5% in Q2 raises recession risk in 2019

(Adds detail, analyst quotes)

DUBAI, Sept 30 (Reuters) - Saudi Arabia's economy grew by 0.5% in the second quarter from a year earlier, government data showed on Monday, hurt by oil output cuts and raising fears of an economic contraction this year.

The economy last contracted in 2017 before recovering to 2.2% growth last year, helped by strong oil output.

Oil sector GDP declined 3.02% in the second quarter, while the non-oil sector grew 2.94% in the quarter, government data showed.

The latest data came as rating agency Fitch downgraded Saudi Arabia's credit rating to A from A+ on Monday. It cited deterioration of the kingdoms fiscal position and rising geopolitical and military tensions in the Gulf after an attack on its oil facilities.

Saudi Arabia has also restrained crude production by more than called for by an OPEC-led supply deal to support oil markets, which prompted some economists to predict little growth or contraction earlier this month.

"The deceleration in real headline GDP growth was expected, with the oil sector contracting as Saudi Arabia restrained oil output to support the price," Monica Malik, chief economist at Abu Dhabi Commercial Bank, who expects 0.1% contraction this year.

But she said the encouraging aspect of the data was the strengthening in real non-oil activity, with the data pointing to a further pickup in investment.

Jason Tuvey, senior emerging markets economist at Capital Economics, said in a note the breakdown of the data showed that the slowdown between the first quarter and second quarter was driven by cuts in oil production.

Having recorded growth of 1.0% year-on-year in the first quarter, output in the oil sector contracted in the second quarter, he said.

"In short, the Saudi economy is now officially in recession," said Tuvey.

Rating agency S&P said on Sept. 27 it expects real Saudi GDP will contract by about 0.4% this year, driven mainly by a fall in oil production tied to the OPEC deal and the attacks.

The projection came after Moody's earlier cut its forecast for Saudi economic growth in 2019 to 0.3% from its previous projection of 1.5% as it expects lower oil ouput.

(Reporting by Davide Barbuscia and Alexander Cornwell; writing by Saeed Azhar; editing by Larry King)