Saudi GDP to grow this year as oil prices rebound: CE

Saudi Arabia’s economy will pull out of recession this year, driven by higher oil prices and loosening fiscal policy, according to London-based Capital Economics.

“A combination of fiscal support and a stabilisation in oil output is likely to return the economy to positive growth in 2018. We expect GDP to expand by about 1.5 percent this year, compared to a contraction of 0.7 percent in 2017," the research consultancy said in a new report.

As oil prices rebounded in 2017 following an agreement between major producers to trim output, the direction of Saudi Arabia’s fiscal policy appears to have shifted in recent months, the report said.

“After more than two years of austerity, the most recent public finance data suggest that policy was actually loosened in the second half of 2017. Moreover, the government’s budget plan points to a further relaxation in 2018.”

However, economic recovery will be "fleeting" and growth will slow again in 2019, Capital Economics said, adding that it expects GDP growth of 1 percent next year, against consensus expectations of 2.3 percent.

Growth is seen to slow down as oil prices are expected to drop back from $69 per barrel to $55 per barrel by the end of 2018.

“This is likely to dent consumer and investor sentiment, weighing on domestic spending. The government will probably respond by resuming its fiscal consolidation efforts to prevent the budget deficit from blowing out and to counter any renewed concerns about the riyal," Capital Economics said.