Saudi fiscal policy to boost non-oil sector: Al Rajhi Cap

The Saudi government's expansionary fiscal policy for 2019 will result in a pick-up in the non-oil sector in coming quarters, Al Rajhi Capital said in a new report on Thursday.

The Kingdom's economy has continued to expand for the third straight quarter last year with Q3 2018 GDP increasing at the fastest pace since early 2016, driven by improvement in the oil sector on higher oil prices.

Further, the non-oil sector also aided the economic expansion in Q3, albeit at a slower pace, led by the financial, manufacturing and government services segments, the consultancy added.

Credit to the private sector rose for the ninth consecutive month (+2.9 percent) year-on-year (YoY ) in December, while credit to the public sector also registered a rise (+16.9) YoY. Further, consumer spending continued to increase last month, as indicated by improvement in POS transactions (+10.4) YoY.

Meanwhile, local unemployment rate fell to 12.8 percent in Q3 2018 (12.9 percent in Q2), whereas the Saudi labor force participation rate remained steady at 42 percent in Q3 2018.

"We believe that the government’s efforts to increase investments (including NIDLP, Future Investment Initiative, among others) in the private sector should create more jobs and improve employment rate among Saudi nationals in the near term," Al Rajhi Capital said.

With the government’s commitment to support the economy and the possible rise in oil prices, the Saudi Arabian economy is on the trajectory of improvement, it noted.