Saudi’s non-oil growth will accelerate to 3.3% in 2019: IIF

Saudi Arabia's non-oil real GDP growth is expected to accelerate to 3.3 percent this year from 1.8 percent in 2018, supported by the continued fiscal stimulus and the gradual recovery in private non-oil growth, Institute of International Finance (IIF) said in a new report.

However, overall real GDP growth will moderate to 2 percent, dragged down by a cut in crude oil production due to the OPEC+ deal.

Over the medium term, non-oil growth could accelerate as megaprojects are being implemented and progress is made in improving the business environment and diversification, the report noted.

According to IIF, CPI inflation will slow from an average of 2.5 percent in 2018 to less than one percent in 2019 due to base effect and the assumption of no further increase in energy prices and weak domestic demand.

While the trade body expects at most two interest rate hikes, each 25 basis points this year, in line with future US Federal Reserve moves, it said that the increase in the cost of borrowing is likely to constrain the expected modest recovery in credit growth and weigh on economic activity.

Meanwhile, foreign direct investment (FDI), which is critical to the success of the Vision 2030, while doubling in 2018, remains less than one percent of GDP, one of the lowest among emerging and developing economies.

The Kingdom needs to attract adequate FDI outside the energy sector to support the Vision 2030 plan to diversify the economy, and create a dynamic and expanded private sector. 

In order to achieve the goals, IIF suggested reforming labor market regulation to reduce disincentives for hiring and firing; overhauling the educational system to ensure adequate skill-building; improving the business climate and governance and improving access to finance, particularly for SMEs to help catalyze entrepreneurship and private investment.