Saudi economy to grow 2% in 2018-19, says World Bank

Economic growth in Saudi Arabia is expected to rebound close to 2 percent in 2018-2019, the World Bank’s biannual Gulf Economic Monitor report said on Monday.

Other GCC countries will follow suit with growth expected to strengthen gradually this year and next, aided by the recovery in energy prices, easing of fiscal austerity measures, and the possible expiry of OPEC’s crude production deal this year, it added.

The positive outlook comes in the wake of the region reporting growth of mere 0.5 percent last year – the weakest since 2009 and down from 2.5 percent in 2016.

“While the recent increase in oil prices provides some breathing space, policymakers should guard against complacency and instead double down on reforms needed to breathe new life into sluggish domestic economies," said Nadir Mohammed, World Bank Country Director for the GCC. 

"Any slippage could negatively impact the credibility of the policy framework and dampen investor sentiment,” he added.

Downside risks for economic growth include lower-than-expected oil prices exerting pressure on OPEC producers to extend or deepen their production cut agreement, which could dampen medium-term growth in GCC countries.

Although fiscal and current account balances are improving, the region continues to face large financing needs and remains "vulnerable to shifts in global risk sentiment and the cost of funding".

Over the longer term, the enduring dominance of the hydrocarbon sector in the GCC economies makes the case for vigorous implementation of structural reforms.  

Structural reforms should focus on economic diversification, private sector development, and labor market and fiscal reforms, Mohammed said.

The World Bank praised Saudi Arabia on its reforms under the Vision 2030 program, which aims to diversify the economy by boosting the private sector’s share of the economy from 40 to 65 percent and small and medium enterprise (SME) contribution to GDP from 20 to 35 percent. 

Meanwhile, the report noted that GCC states face sustainability, equity and welfare challenges related to their pension systems, which need to be addressed urgently to prevent any negative impact on economic growth, fiscal sustainability, and labor market stability. 

"If GCC countries wish to attract global talent, they will also need to consider potential solutions for expatriates that help to meet their long-term pension and financial security needs," it added.