DUBAI: The Saudi Arabian economy will grow by an estimated 1.5 percent in 2018, according to a new report from Riyadh-based economic analysts at Jadwa Investment.
“We expect an improvement in the Saudi economy in the year ahead, supported by both the oil and non-oil sector. Oil sector gross domestic product (GDP) is expected to improve, in part, due to rises in oil production as OPEC and non-OPEC countries gradually exit from cuts at some point during the year,” said Fahad Al-Turki, Jadwa’s chief economist.
“Growth in the non-oil sector is forecasted to improve as an expansionary budget, with a specific set of stimulus packages, lifts activity.”
The new estimate of GDP this year is broadly in line with the recent update from the International Monetary Fund, which forecast 1.6 percent growth. It compares with a 0.7 percent contraction in the economy in 2017.
However, both IMF and Jadwa’s forecasts are lower than the official estimate for economic growth made at the time of the Saudi budget in December, which suggested 2.7 percent overall growth in the Kingdom’s economy this year, largely fueled by a forecast 3.7 percent expansion in non-oil activity. Jadwa expects non-oil growth to be limited to 1.1 percent, up from 0.7 percent last year.
Since the official budget estimate, there have been multibillionriyal interventions in the economy, in the form of the Citizens Account — the government fund to compensate less well-off citizens for the rising cost of living — and extra allowances for pubic and military employees, as well as a stimulus package aimed at small- to medium-sized enterprises (SMEs).
“The oil sector will see the largest improvement in the year ahead, rising to 1.5 percent in 2018, compared to a decline of 3 percent in 2017. The recovery in the oil sector will be driven by a modest rise in Saudi oil production and the start-up of the Jizan refinery during the year,” Jadwa said.
The stimulus packages, on top of what economists agreed was the biggest and most expansionary budget in the Kingdom’s history, will be particularly growth-enhancing for the private sector, Jawda said.
“We see transport and communications as stand-out sectors in 2018. Besides the Public Investment Fund investing SR14 billion in railroads and infrastructure projects, the King Salman International Complex for Maritime Industries and Services is expected to commence major production operations during the year. The complex, which will be the largest maritime industries complex in the region, underlines the Kingdom’s efforts in diversifying the economy’s sources of income, as set out under the Vision 2030 strategy.”
The non-oil sector is regarded as crucial, with revenue from this source enhanced by the introduction of energy price reforms, value added tax, land tax, and expat levies, to bring in as much as SR291 billion for the national economy.
Jadwa also warned of risks from these measures. “Whilst consumer spending could be affected by the implementation of VAT, energy price reform will impact the running costs of private companies and discretionary income of a number of more affluent households.
“That said, we see the set of expansionary measures, implemented via the private sector stimulus package, as well as payments received under the Citizens Account plus the recently announced cost of living allowances, as being sufficient to bring about solid growth,” it added.