Alkhabeer Cap develops three scenarios for coronavirus impact on Saudi economy in 2020

Alkhabeer Capital said in a recent report it is difficult to accurately assess the impact of the coronavirus pandemic on the Saudi economy amid the current global uncertainty.

Alkhabeer Capital developed three scenarios for the COVID-19 impact on the Saudi economy, based on three key factors: how long the coronavirus will last locally and globally; the governments’ ability to support economy and maintain activity amid the crisis; as well as the demand for oil and price hike.

In the bullish scenario, the investment bank expects a V-shaped recovery in Q3 2020, as the coronavirus infection reaches its peak in May and government have started to alleviate social distancing restrictions.

In this scenario, Brent crude prices are expected to hit $44 per barrel on average this year. The Kingdom’s deficit is forecast to rise from SAR 133 billion in 2019 to SAR 264 billion in 2020. The current account surplus of SAR 187 billion in 2019 is projected to turn into a deficit of SAR 51 billion in 2020, with the real GDP declining by 3.57%.

In the base case scenario, Alkhabeer Capital expected a U-shaped economic recovery in Q4 2020 amid continuous COVID-19 infections worldwide and a gradual decrease in injuries during June. New COVID-19 infections are expected to maintain growth in the third quarter of the year particularly in countries, where the infection rate has recently declined such as China.

In this scenario, Brent crude prices are expected to hit $39 per barrel on average this year. The Kingdom’s deficit is forecast to stand at SAR 413 billion in 2020. The current account deficit is projected to hitSAR 115 billion in 2020, with the real GDP declining by 5.35%.

In the bearish scenario, the research firm expected infections to continue worldwide, reaching their peak by the end of the second and third quarters of the year. The coronavirus is likely to continue until Q2 2021, amid slow economic activity as the countries will be unable to curb the pandemic, in addition to escalated geopolitical risks in the region.

In this scenario, Brent crude prices are expected to hit $34 per barrel on average this year. The Kingdom’s deficit is forecast to rise to SAR 521 billion in 2020. The current account deficit is projected to hit SAR 123 billion in 2020, with the real GDP declining by 6.6%.

Based on these scenarios, the Saudi market is expected to maintain its downtrend within the next few months.

The market drop is limited due to the coronavirus crisis. The drop is still lower, compared to previous crises witnessed by the market. The limited drop is attributed to participant’s bullish outlook for economic recovery, immediately after the end of the crisis, Alkhabeer Capital concluded.