Saudi economy recovers in Q1 after last year’s decline: CE

Saudi Arabia’s economy returned to positive growth in the first quarter of 2018, following the downturn that had deepened towards the end of last year, London-based Capital Economics (CE) said in a recent report.

“The impact of the 2016 OPEC agreement to cut oil output has now faded,” the report said. “Based on monthly oil production data, it looks like the oil sector expanded in year-on-year terms in the first few months of 2018.”

This in itself could add about 2percentage points to Saudi Arabia’s GDP growth between Q4 2017 and Q1 2018, it added.

The overall pace of the recovery, however, is likely to be slow and CE expects a GDP growth of 1.5 percent over this year as a whole (following a 0.8 percent decline in GDP in 2017).

According to the report, the non-oil sector appeared to have slowed. Consumer-facing sectors, in particular, seem to be struggling as a rise in inflation erodes households’ real incomes.

Subsidy cuts and the introduction of value-added tax (VAT) pushed inflation up from -1.1 percent YoY in December to around 3 percent at the start of 2018.

Point of sales transactions, which are seen as a measure for consumer spending, slowed sharply at the beginning of this year, the report added.

“Other broader measures of activity in the non-oil sector also point to weakness,” the consultancy said.

Non-oil imports dropped by 13.2 percent YoY in January; and the ‘whole economy’ purchasing managers’ index (PMI), which covers the entire non-oil private sector, fell to a record low last month, it added.

However, the public sector bonuses announced in January this year should help mitigate the effects of austerity measures.

“And that, together with higher public infrastructure spending, should support a recovery in the non-oil sector later this year,” CE said.