Saudi consumer spending to improve as economy recovers: BMI

Saudi Arabia's consumer outlook will improve in 2018, supported by government's reform programs and favorable economic conditions, BMI Research said in a new report.

"Government stimulus and social reforms targeted at unemployment will bode well for consumers in Saudi Arabia," the consultancy noted.

It, however, cautioned that growth will remain "tepid" due to inflation returning following fiscal reforms and a rise in oil prices, as non-oil industry diversification is not picking up significantly over the short term.

The Kingdom's real GDP is forecast to grow by 1.6 percent in 2018, up from a 0.7 percent contraction in 2017, a pick up over BMI's medium-term forecast to 2022.

Private consumption growth will pick up this year to 2.5 percent from 1.3 percent in 2017, supported by the Kingdom's boost in fiscal stimulus such as special bonuses to civil servants and cash transfers to vulnerable households. Even the ongoing social and labor reforms will support consumer spending.

"We expect the trend to continue in the months ahead, facilitated by higher oil prices, which will spur substantial growth in government revenues," the consultancy said.

According to BMI, inflation will increase to average 3.3 percent in 2018, down from its previous forecast of 3.6 percent and compared with 0.2 percent deflation in 2017.

Oil prices are expected to average $73 per barrel in 2018 and $77 per barrel in 2019, up from $54.7 per barrel last year.

“While we expect demand-pull price pressures to return, owing to an improving macroeconomic backdrop, we believe these will remain modest, mitigated by the Saudi Arabian Monetary Authority’s tightening cycle in line with moves by the US Federal Reserve and an uptick in oil prices," the consultancy added.