IMF:Saudi Arabia’s Economy Seen To Grow To 1.7% in 2018

Following the rise in crude oil prices, IMF has marginally raised Saudi Arabia’s 2018 economic growth forecast to 1.7% (previous: 1.6%).

This is expected to further accelerate to 1.9% in 2019 (previous estimate: 2.2%) on account of a possible increase in oil production post the expiry of output cut agreement.

SAMA data supported IMF’s contention of pick-up in economic activity as total credit growth stood at 0.5% m-o-m in March 2018, driven by private sector credit (+0.6% m-o-m, highest in 22 months). Consumer spending was also strong, as indicated by the 19.8% y-o-y jump in POS transactions (second highest growth in three years), led by ‘Restaurants and Hotels’, ‘Food and Beverage’ and ‘Clothing and Footwear’ segments.

On the other hand, unemployment rate among Saudi nationals remained steady in Q4 2017, whereas the overall unemployment rate rose to 6% (from 5.8% in previous quarter), indicating higher unemployment among non-Saudi nationals.

Meanwhile, the Saudi government continues on its path to reduce the Kingdom’s dependence on oil, and recently released the details of the privatization program, a major part of its Vision 2030 plan.

Under the plan, the government targets to raise SAR35-40bn from asset sales, and achieve additional net savings (capex & opex) of SR25-33bn from privatization /PPP, while creating 10-12k jobs by 2020. Moody’s recently affirmed the Kingdom’s sovereign rating at A1 on expectations of continued fiscal consolidation coupled with the government’s structural reforms.

Meanwhile, SAMA reserves rose on a monthly basis in March after falling for two straight months, supported by rising oil revenue.

Separately, Q4 2017 GDP data showed that the Saudi economy contracted in the last quarter of 2017 (-1.2% y-o-y), primarily owning to the oil sector (-4.3% y-o-y).

Kingdom’s privatization program to raise around SR35-40bn by 2020 through asset sales. Under the scheme, the government would engage in privatization of its football clubs, four flour mills and a water desalination production facility.

The plan also calls for corporatization of ports, privatizing of some transportation sector services, and making King Faisal Specialist Hospital & Research Centre a non-profit organization.

The plan (Privatization/PPP) would also lead to net savings (capex & opex) of SR25-33bn for the Saudi government by 2020, while creating 10-12k jobs by 2020.

Kingdom’s Q4 2017 GDP figures showed that the economy contracted 1.2% y-o-y (-0.4% y-o-y in Q3 2017), dragged down by the 4.3% decline in oil sector due to the output cut deal. However, the non-oil sector grew 1.3% y-o-y, compared to 2.1% y-o-y growth in Q3 2017, backed by government spending.

Moody’s affirmed Saudi Arabia’s sovereign credit rating to A1 on expectations that the government’s structural reforms would reduce the Kingdom’s reliance on oil and the continued fiscal consolidation would stabilize the government’s debt burden below 30% of the GDP.

SAMA total reserves rose sequentially after falling for two straight months in March 2018. Government reserves with SAMA stood at SR605.4bn (including Government current account) as of March 2018, recording a monthly fall of 0.5%. Meanwhile, the deposits declined for the second consecutive month in March, down 0.6% m-o-m (-0.5% y-o-y), whereas credit to the private sector rose 0.6% m-o-m (-0.7% y-o-y) in March.

Q4 2017 labor data indicated that the total unemployment rate rose to 6.0% from 5.8% in Q3 2017, while the Saudi unemployment rate remained steady at 12.8% for the same period.

Real Estate Price Index fell at a slower pace of 1.5% y-o-y in Q1 2018, as against a fall of 3.3% y-o-y in Q4 2017, as residential and commercial property prices dropped at a slower pace.

Banking sector profits surged 22.4% y-o-y to stand at SAR 4,143mn in March 2018, while on a monthly basis, profits rose 8.9%. The cumulative banking sector profits for Q1 2018 stood at SR12,113mn, up 7.6% y-o-y.

Money Supply (M3) rose 0.2% y-o-y in March 2018 to SAR 1,782bn, versus the yearly rise of 2.0% in February, supported by the rise in M1 (+2.2% y-o-y). Meanwhile, as per the weekly money supply data by SAMA, M3 may remain broadly stable in April 2018.

Consumer spending continued to march north as indicated by the Point-of-sale (POS) transaction +19.8% y-o-y in March 2018, versus the rise of 8.7% y-o-y in February, led by rise in ‘Restaurants and Hotels’ (+41.7% y-o-y), ‘Food and Beverage’ (+25.9%) and ‘Clothing and Footwear’ (+14.9% y-o-y) segments.

ATM transactions rose 5.3% y-o-y in March 2018 compared to the rise of 2.7% y-o-y in February.

Personal Transfers (Remittances) by Saudi nationals advanced 40.6% y-o-y in March 2018, while remittances by non-Saudi nationals was almost flat (+0.4% y-o-y) in the same month.

Crude oil prices (Brent July futures contract) gained 8.5% m-o-m in April 2018, due to geopolitical concerns in Syria and Iran coupled with easing trade war concerns between the US and China. Further, the drop in the US crude oil stockpiles also supported crude oil prices. Meanwhile, Saudi Arabia’s crude oil production edged down on a monthly basis in March 2018.

Kingdom’s non-oil exports advanced for the fifth consecutive month, up by 35.8% y-o-y in February 2018 (+18.0% y-o-y in January 2018), whereas the non-oil imports fell 1.1% y-o-y in February 2018 (-13.2% y-o-y in January 2018).

Cost of living index (base year 2013) grew by 2.8% y-o-y in March 2018, owing to slower rise in the ‘Housing, Water, Electricity, Gas’ and ‘Food & Beverage’ sectors. On a monthly basis, the index slipped 0.2% in March 2018 as against the rise of 0.1% m-o-m in the previous month.

Saudi Arabia raised SR5bn in April through domestic sukuk issuance under the SR-denominated sukuk program.

The government sold SR3.8bn of 5 year bonds, SR750mn of 7 year bonds and SR450mn of 10 year bonds. Further, the Kingdom also raised $11bn via international bond sales. The government issued $4.5bn of 7 year bonds, $3bn of 12 year bonds and $3.5bn of 31 year bonds.

The US Energy Information Administration (EIA) in its April 2018 report estimated Brent crude oil prices to average $63/barrel for 2018 and 2019.