The economy of Saudi Arabia begins to recover after a severe recession since the global financial crisis, if only because the country is recovering oil prices and increasing government spending.
According to data released on Sunday, GDP for the first three months of 2018 increased by 1.2% compared to last year, this is the first expansion in five quarters. The non-oil economy grew to 1.6% from 1.3% in the previous quarter. Analysts believe that the recovery will gain momentum at the end of this year amid the impact of a package of government stimulus measures.
“This budget was very expansionary. We see the result of everything that leads to stronger growth rates, ”Mohamad Al-Hajj, securities market strategist at investment bank EFG-Hermes, told Bloomberg on Monday.
Strengthening the non-oil economy, the main driving force behind job creation, is critical to the success of Crown Prince Muhammad bin Salman’s project to reduce the kingdom’s dependence on income from crude oil exports.
But over the course of two years, regarding the Crown Prince’s plan, analysts have repeatedly pointed out that growth continues to depend on government spending based on oil, as businesses struggle with various measures, including value-added taxation and expatriate taxes, which force thousands of them to leave the kingdom.
Saudi Arabia GDP Dynamics, Bloomberg
The data released on Sunday did little to change:
• private sector growth remains low, with an annual rate of 1.1% after 0.4% in the previous quarter;
• the public sector grew by 2.72%;
• GDP per oil sector grew by 0.62%.
The largest Arab economy last year fell by 0.7% for the first time since 2009, as the kingdom reduced oil production under an agreement between the world’s largest producers. Non-oil GDP grew 1.1%.
Monika Malik, chief economist at the commercial bank Abu Dhabi, noted that she expects “in the second quarter of 2018, there will be a gradual increase in non-oil activity, while higher oil revenues will contribute to increased government spending.”
Bank loans to private companies rose in April for the first time in the last year, the bank said. The volume of withdrawn funds from ATMs, the indicator of household spending, also showed signs of recovery.
“However, falling foreign populations and high unemployment will limit the recovery of private spending,” Malik said.
The improved outlook is also “dependent on oil prices,” she said. Brent rose by 17% this year, on Monday it reached $ 78 per barrel.
Authorities said they expect non-oil GDP growth to increase by 3.7% this year. This is still an upbeat mood, according to Bloomberg Economics, which estimates an increase of 2.7%.
“Non-oil-related GDP growth is likely to accelerate at the end of the year as government incentives begin to be realized and these costs are felt,” said Ziyad Daoud, chief economist for the Middle East for Bloomberg Economics. Nevertheless, growth is still “below our estimates for the entire year,” he said.