Interest rate cut 'positive' for GCC, to boost economic growth: EFG Hermes analyst

Mohamed Abu Basha, Head of Macroeconomic Analysis at EFG Hermes

The prospect of an interest rate cut in the coming months is positive for the Gulf states, especially amid strong government spending, possibly boosting economic growth, Mohamed Abu Basha, Head of Macroeconomic Analysis at EFG Hermes, told Argaam.

On the sidelines of EFG Hermes' 10th Annual London Conference, Abu Basha said he expects the Federal Reserve to start easing monetary policy this September, based on recent inflation and job data. He forecasts the benchmark rate to be lowered three times this year, with a total reduction of 75 basis points (bps).

OPEC's decision to cut oil production and maintain the current price levels may help stabilize prices and finance necessary expenditures, but its impact on non-oil economic growth will be limited, the analyst said. He emphasized that the focus remains on non-oil sectors, which grew by 4%.

The relevant impact will likely appear in H2 2024 and the next year. However, it would not be significant as the Kingdom's overall economic growth had been negative, with a potential turnaround after the base year, Abu Basha said.

He highlighted that the non-oil growth is driven by strong government spending and major investments, particularly through the Public Investment Fund (PIF), in various sectors. Moreover, the interest-rate cut could stimulate the real estate sector, leading to renewed growth in the construction industry.

Oil prices are currently stable, and the reassessment of giant projects in Saudi Arabia is the result of prioritization. This could slightly affect growth rates but contributes to achieving the desired sustainability.

Abu Basha noted that non-oil economic growth rates are expected to remain stable at around 4% in both 2024 and 2025, positively reflecting the sustained growth of Saudi non-oil sectors.