Saudi Arabia’s GDP to contract 1% this year, rebound in 2018: NCB

Saudi Arabia’s gross domestic product (GDP) is expected to contract by 1 percent in 2017, before rebounding next year at 1.2 percent as the country’s recent economic adjustments begin to materialize, National Commercial Bank said in a recent report.

The country’s real GDP contracted during the first and second quarters of this year by 0.5 percent and 1 percent, respectively, primarily due to the decline in oil production in line with the OPEC deal.

Saudi Arabia has seen a drop in oil revenue over 2015 and 2016 – by 51.1 percent and 25.3 percent, respectively – as crude prices fell from their mid-2014 highs.

The decline pushed the government to adjust its expenditures, with expenses falling by 25.2 percent over the past two years as the Kingdom pushed to implement the reforms listed under its Vision 2030 program.

“Public spending adjustments hindered the non-oil sector as economic performance remained stagnant over the past six quarters in real terms,” the report said.

The construction sector contracted 1.6 percent in the second quarter this year, after a decline of 3.2 percent in Q1, it added said.

The manufacturing sector, excluding petrochemical refining, posted a decline of 0.2 percent during the second quarter of 2017.

Gross fixed capital formation fell 9.6 percent annually, registering six contractions over the past seven quarters.

In nominal terms, however, the GDP expanded by 2.5 percent as oil prices averaged higher in 2017 — translating to higher exports of goods and services, increasing by 7.8 percent on an annual basis, the report said.

Recently, the government postponed the removal of fuel, electricity, and water subsidies to 2018. While the lifting of subsidies is expected to impact consumers’ disposable income, Saudis will receive cash grants from the Citizen’s Account program.

Also, the restoration of public sector employee benefits retrospectively will provide support for the domestic market, the report said.