Jadwa raises Saudi economic growth estimates, reiterates improving business environment in H1 2021

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Jadwa Investment raised its estimates for Saudi Arabia's economic growth for 2021, expecting total GDP growth to reach 1.8%, compared to previous estimates of 1.3%.

"On the fiscal side, an upward revision in our full-year Brent crude forecast to $67 per barrel means we now expect government oil revenue to total SAR 568 billion in 2021," Jadwa said in a report on economic developments in Saudi Arabia.

The company expects GDP from the oil sector to marginally decline year-on-year (YoY), and non-oil growth to rise by 3.5% due to higher non-oil private sector growth of 4.4%.

With no changes to government expenditure, it is expected that fiscal deficit will reach SAR 67 billion, a decrease of 53% from the estimated deficit specified by the Ministry of Finance in the budget statement.

A total of SAR 96 billion in new net debt has been issued so far this year, which is more than sufficient to cover the fiscal deficit. This means there will be no need to resort to government deposits held at the Saudi Central Bank (SAMA) for deficit financing.

The main risks to the Saudi economy are related to the potentially disruptive nature of COVID-19, or, more specifically, its variants. However, Jadwa remains confident that the overall business environment will continue improving in the remainder of 2021.

Amid the strong rebound in economic activity in Q2 2021, some sectors performed better than anticipated, Jadwa said, adding that it expects higher growth in three sectors, namely, real estate, non-oil, wholesale and retail trade, and restaurants and hotels.

"Looking ahead, we see the real estate sector to continue growing strongly in H2, as higher home ownership under the Housing Vision Realization Program (VRP) continues," the report noted.

The company also expects that the recent decision that allows foreigners residing in the Kingdom to own one property will contribute to the growth of the real estate sector in the coming period.

Consumer spending in the Kingdom is expected to remain strong in H2 2021, specially as restrictions around social distancing are gradually relaxed (as herd immunity is reached).

With the return of in-person attendance in school in the coming academic year and the gradual scaling up of vaccinated pilgrims, this will likely lift spending in the hotels and education segments to pre-pandemic levels.