The Worst May Be Over for the Saudi Economy
(Bloomberg) -- Saudi Arabia’s economy is starting to emerge from the worst slowdown since the global financial crisis, if only due to rebounding oil prices and higher public spending.
Gross domestic product grew 1.2 percent in the first three months of 2018 compared with a year ago, the first expansion in five quarters, according to data released on Sunday. The non-oil economy grew 1.6 percent from 1.3 percent in the previous quarter, and analysts said the recovery will gain momentum later in the year as the impact of a government stimulus package filters through.
“The budget was very expansionary,” Mohamad Al Hajj, a Dubai-based equities strategist at investment bank EFG-Hermes, told Bloomberg TV on Monday, listing steps that included cash transfers and handouts to offset the impact of subsidy cuts. “You’re seeing the results of all of that translating into stronger growth numbers.”
Bolstering the non-oil economy, the main engine for job creation, is crucial to the success of Crown Prince Mohammed Bin Salman’s blueprint to wean the kingdom from its reliance on income from crude exports -- a feat rarely accomplished by large commodity producers.
But more than two years into the prince’s plan, analysts have repeatedly noted that growth remains reliant on oil-driven government spending, as businesses struggle with measures including value-added taxation and levies on expatriates that drove thousands of them to leave the kingdom.
Sunday’s data did little to change the picture:
- Private-sector growth remains somewhat muted at an annual rate of 1.1 percent from 0.4 percent in the previous quarter
- Government sector expanded 2.72 percent
- The oil GDP grew 0.62 percent
The biggest Arab economy contracted 0.7 percent last year for the first time since 2009, as the kingdom reduced its oil output as part of an agreement among major global producers. Non-oil GDP grew 1.1 percent.
Monica Malik, chief economist at Abu Dhabi Commercial Bank, said she expects “some gradual tick up in non-oil activity from the second quarter of 2018, with the higher oil revenue supporting stronger government spending.”
Bank loans to private businesses grew in April for the first time in more than a year, central bank data show. ATM withdrawals, a measure of household spending, also showed signs of recovery.
“However, the fall in expatriate population and still-high overall unemployment will limit the recovery in private spending,” Malik said.
The improved outlook is also “contingent on oil prices,” she said. Brent crude prices have climbed 17 percent this year to about $78 a barrel on Monday.
Authorities said they expect non-oil GDP to expand 3.7 percent this year. That’s still optimistic, according to Bloomberg Economics, which estimates a 2.7 percent growth rate.
“Non-oil GDP growth is likely to accelerate later in the year as the government stimulus kicks in and the impact of that spending is felt,” Ziad Daoud, chief Middle East economist for Bloomberg Economics in Dubai, said. However, growth is still “below our estimates for the full year,” he said.
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