Saudi Arabia’s economic recovery has given the government fiscal room to increase spending that will drive growth in private consumption, Fitch Solutions said in a report on Thursday.
“With the economy emerging from recession in 2018, the Saudi government has more fiscal room. Over 2019, we expect the government to ramp up spending, driving increased activity in non-oil sectors. This will spur job creation, providing tailwinds to private consumption,” the report added.
While maintaining that government spending is the main driver of growth in private consumption, due to the large public sector workforce, the report added that the inflation rate has stabilized, after the introduction of VAT in early 2018, while consumer confidence continues to trend upwards, supporting growth in both point of sale transactions and consumer loans.
“We forecast private consumption growth of 2.4 percent y-o-y in 2019, up from 2.3 percent in 2018 and -0.9 percent in 2017,” Fitch Solutions added in the report.
Holding a positive outlook for the Saudi consumer in 2019, Fitch Solutions said the Saudi economy will grow by 2.4 percent over 2019, up slightly on the 2.3 percent estimated for 2018.
It said the leading driver of growth in the economy will come from increased government spending, stimulating growth in both investment and consumption.
“Saudi Arabia's economic trajectory remains highly correlated with global oil prices, despite ongoing attempts at economic diversification,” it added.
That said, Fitch maintains the view that OPEC+ oil supply restrictions will limit oil exports, preventing a more robust economic recovery.
“Over the medium term, economic growth across the Kingdom will remain stable, averaging 2.2 percent real GDP growth per year over 2019-2023,” it added.
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