Saudi real GDP to grow by 1.8% in 2018: NCB

Saudi Arabia’s real GDP is projected to grow by 1.8 percent this year, supported by a 2.8 percent annual increase in non-oil GDP, the National Commercial Bank (NCB) said in a new report on Wednesday.

Despite the recent discussions of adjusting the OPEC and non-OPEC oil production cut agreement, the bank said it does not expect a substantial increase in Saudi oil production.

"While Saudi production is expected to average around its quota of 10 million barrels per day, as any possible raise in production from OPEC and non-OPEC will likely be gradual during the second half of 2018, which will result in real oil GDP registering a gain of 0.5 percent on an annual basis," it added.

Oil prices will average $63 per barrel in 2018, which will raise the government’s revenue to SAR 574.8 billion this year, 30.6 percent increase over 2017, the report said.

According to NCB, the utilization of the realized savings from streamlining expenses towards stimulating economic growth will help to accelerate private non-oil GDP growth to 2.2 percent in 2018.

Additionally, the bank estimated the Kingdom's debt levels to continue rising to 20.5 percent of GDP, equating to SAR 555 billion by the end of 2018.

On the issue of Dollar-Riyal currency peg, NCB said that maintaining the currency peg will continue to be a “challenging task” for Saudi Arabian Monetary Authority (SAMA) in 2018 and 2019 due to the volatility of oil prices and rising public debt.

However, the size of net foreign assets at $486.2 billion by March-end will give SAMA enough power to defend the exchange rate.

"We believe SAMA might resort to either direct liquidity injections, reducing reserve requirements, reducing the loans-to-deposits ratio limit of 90 percent, or possibly a combination to tackle any shortage of liquidity and reduce the risk of a monetary drag offsetting the announced fiscal stimuli," the report noted.

Meanwhile, NCB said the downside risks to Saudi and global economic performance are myriad geopolitical concerns pertaining to Iran, North Korea and US-China trade war.