Saudi GDP growth to hit 2.4% in 2017 on NTP impact: Jadwa

Saudi Arabia’s GDP growth is expected to rise to 2.4 percent in 2017 as the impact of the National Transformation Program (NTP) starts to be seen, Jadwa Investment said in a research note Wednesday.

The implementation of the NTP will improve the kingdom’s macroeconomic performance over the next five years, with growth driven more by private sector activity rather than the oil industry or public spending patterns, the report said.  

“We believe that 2016 will not be impacted by NTP initiatives and therefore forecast the slowdown in activity to persist this year,” Jadwa Investment said, adding that the kingdom’s GDP will reach 1.7 percent this year.

“However, the impact of the NTP will start being felt in 2017, with growth, fiscal, external, and monetary indicators posting a gradual recovery in following years as well,” the firm added.

Non-oil private sector GDP is forecast to reach 2.4 percent this year and accelerate to 2.8 percent in 2017, as the private sector begins to benefit from a rising number of opportunities offered by the NTP. This includes the opening up of the retail sector to foreign investment, and an anticipated growth in construction activity in response to the white land tax introduced by the government.

Meanwhile, Saudi Arabia’s oil sector GDP growth is forecast to slow to 0.9 percent in 2016, down from 4 percent last year as competition between OPEC and non-OPEC producers keeps prices low.

However, GDP from the oil sector is expected to rise to 2.1 percent next year, driven by changes in oil production and oil sector growth, the note said.

As oil revenues look set to increase next year, the forecast for the kingdom’s fiscal deficit has been revised, and the deficit will decrease to SAR 283 billion for 2016 (12 percent of GDP) and SAR 210 billion (8 percent of GDP)in 2017.

“Higher oil revenues will lead to smaller deficits than our earlier forecast, while the consolidation in the kingdom’s finances is expected to be achieved at a much faster rate than what we anticipated previously, which should help with a notable improvement in the deficit over the next few years,” Jadwa Investment said.

The firm also expects Saudi Arabia’s current account deficit to shrink due to higher oil revenues, and has accordingly revised down its forecast for the 2016 deficit to $56 billion (8.8 percent of GDP) from $77 billion. In 2017, the deficit will reduce further to $27 billion (3.9 percent of GDP).

Looking ahead, concerns remain about continued market volatility and tightening of global financing conditions, Jadwa Investment said, adding however that the implications for Saudi Arabia should not be exaggerated.

“Markets need to differentiate the Kingdom’s strong fiscal buffers and determination for reform from other vulnerable economies. That said, any delay in implementing the key initiatives in the NTP could pose downside risks to our baseline forecast,” the note said.