Saudi economy improving as oil prices rise: Al Rajhi Cap

Saudi Arabia's economy is improving “moderately” following a healthy recovery in oil prices post OPEC+ production cuts, Al Rajhi Capital said in a new report.

"Overall, improvement in oil prices and the government’s commitment towards lifting the non-oil sector contribution will help the Kingdom’s economy to continue expand further," it noted.

OPEC and its non-OPEC allies reached a deal last December to cut oil production by 1.2 million barrels per day (mbd) for the first six months of 2019 in a bid to boost energy prices.

Meanwhile, credit to the private sector rose 2.4 percent year-on-year (YoY) in January  - the tenth straight month-on-month rise, while bank claims to the public sector witnessed a jump of 19.5 percent YoY, the report said.

Consumer spending continued to rise on an annual basis in January as reflected by the improvement in POS transactions (+31.8 percent YoY) and ATM withdrawals (+1.6 percent YoY).

"The larger increase in POS sales as compared to ATM withdrawals could imply that ecommerce is picking up," the consultancy added.

Additionally, personal transfers by Saudi nationals declined for the fourth consecutive month in January (-20.6 percent YoY), however, remittances by non-Saudi nationals rose (+6.1 percent YoY) after falling for three months in a row.

SAMA foreign reserves declined for the first time in 10 months in January (-0.9 percent YoY). Despite the drop, Kingdom has sufficient reserves to enable it to curb fiscal deficit this year.

Besides, the Saudi government plans to issue international sukuk in H2 2019, which could provide sufficient headroom to plug fiscal deficit further.

According to the report, the cost of living index entered the deflation territory in January 2019 (-1.9 percent YoY) for the first time since 2017, as the impact of VAT moved out for the comparable period.

The most influencing segment behind deflation is the decline in “housing, water, electricity, gas” (constitutes around a quarter of the index), which could be impacted by lower housing rental prices on weak demand amid the exodus of expats, Al Rajhi Capital noted.