Saudi Arabia’s non-oil growth accelerated one percent year-on-year (YoY) in 2017 compared to a 0.23 percent in 2016, said Al Rajhi Capital.
The pace of growth will continue in 2018, supported by the government’s plan to spend SAR 978 billion this year under its 2018 budget, it added.
Within the non-oil sector, the private sector, which contributes 70 percent of real non-oil GDP, grew by 0.7 percent, while government sector rose 1.7 percent.
The Kingdom's non-oil exports jumped by 13.1 percent YoY in October 2017, compared to a decline of 2.1 percent YoY in September, while non-oil imports increased 2.3 percent YoY in October 2017, after falling for two consecutive months.
However, the 2017 real GDP (preliminary) figures showed the economy contracted 0.74 percent YoY in 2017 from 1.67 percent YoY in 2016, primarily due to a 2.97 percent decline in oil exports in line with OPEC agreement.
In November 2017, OPEC and a group of non-member oil producers, led by Russia, agreed to extend until the end of 2018 their agreement to cut oil production by a combined 1.8 million barrels per day (bpd). The deal requires Saudi Arabia to maintain its production below 10.058 million bpd.
Al Rajhi Capital said the increase in gasoline prices as of January 1, part of the economic reforms post the hike in electricity tariff, the introduction of value-added tax (VAT), and citizen account program, affirmed the government's commitment to Vision 2030.
As part of the fiscal balance program, fuel prices were hiked to help rationalize consumption. Octane-91 gasoline prices were increased to SAR 1.37 a liter (up 83 percent from SAR 0.75 earlier), and Octane-95 prices were hiked to SAR 2.04 a liter (up 127 percent from SAR 0.90 earlier).
The government left diesel and kerosene prices unchanged, due to their large-scale industrial and transport usage.
“Though this could weaken consumption, it was expected and should reaffirm government’s resolve to drive the growth of non-oil economy,” the report said.
In December, Saudi Arabia announced plans to raise public spending to SAR 978 billion in 2018 from SAR 926 billion in 2017, thereby delaying an essential fiscal balance target from 2020 to 2023.
The Kingdom's 2018 budget will increase government spending and help soften austerity measures, Al Rajhi Capital added.
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