Saudi Arabia’s real gross domestic product (GDP) growth is set to accelerate substantially this year and next, backed by rising oil production and prices, and recovering business confidence, BMI Research said in a recent report.
The consultancy revised up its GDP growth forecast to 1.9 percent from previous 1.6 percent for 2018 and 3.4 percent from 2.1 percent for 2019, supported by a ramp-up in oil production over the quarters ahead after OPEC's June meeting that allowed member states to ease output restrictions.
The revised figures compare with a 0.7 percent contraction seen last year, the report said. It, however, cautioned that growth will "remain well-below the 5.3 percent annual average seen between 2010 and 2014, before the slump in oil prices."
While the continued uptrend in oil prices will offer further fiscal breathing room to the government, a more expansionary fiscal stance will support consumer spending, enabling business sentiment to improve gradually in the second half of 2018, the report noted.
“Given that oil proceeds accounted for 63 percent of total government revenues in 2017, [the oil price uptick] will offer significant tailwinds to public finances," it said.
“Greater fiscal space will in turn enable the government to increase its support to the economy, as already seen with the implementation of numerous stimulus measures since the start of the year, including cash transfers to vulnerable households, special bonuses for civil servants and a stimulus package for the private sector including subsidized loans and financial support for distressed companies.”
Meanwhile, private and government consumption is expected to continue to expand at a robust pace, following strong growth of 1.6 percent and 2 percent year-on-year, in Q1 2018.
According to BMI, Saudi consumers have so far weathered the introduction of a 5 percent value-added tax (VAT) in January. Consumer and credit loans picked up to 0.7 percent in Q1 2018 from 0.4 percent in the preceding quarter.
"Given our view for oil prices to remain on an upward trend, and for the government to keep supporting the economy through fiscal measures, we believe that consumer confidence will prove robust moving forward, translating into strong growth in spending," the consultancy noted.
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