Saudi Arabia’s Q4 2018 GDP figures indicated that the economy expanded 3.6 per cent y-o-y (+2.5 per cent y-o-y in Q3), driven by the expansion in the oil sector (+6.0 per cent y-o-y in Q4 Vs +3.6 per cent y-o-y in Q3) on higher oil prices and crude exports, reported Al Rajhi Capital, in its latest report on Saudi economy.
However, the non-oil sector expanded at a slower pace (+2.0 per cent y-o-y Vs +2.1 per cent y-o-y), weighed down by the slower rise in ‘Finance, Insurance, Real Estate & Business Services’ segment.
Saudi’s crude exports touched 7.8 million barrels per day (mb/d) in November, as compared to 7.2mb/d on an average in 2018. In addition, the non-oil sector also supported the GDP expansion, although at a slower pace compared to the previous quarter, driven by the manufacturing and financial services segments.
In addition, the ‘Wholesale & Retail Trade, Restaurants & Hotels’ segment slowed down compared to the previous quarter, due to weaker spending on non-essential items along with the exodus of expats.
However, the ‘Construction’ segment remained sluggish. Nonetheless, we continue to believe that the Government’s expansionary fiscal policy for this year will provide an impetus to the non-oil sector in the coming quarters.
Meanwhile, the recent data released by the Saudi Arabian Monetary Authority (Sama), also indicates a continuous improvement in Saudi economy. Credit to the private sector rose at the fastest annual pace in more than two years (+3.1 per cent y-o-y; +0.8 per cent m-o-m) in February, while bank claims to the public sector also recorded a rise (+21.2 per cent y-o-y; +3.6 per cent m-o-m).
Further, consumer spending continued to rise in February as indicated by the annual increase in POS transactions (+26.9 per cent y-o-y; -9.8 per cent m-o-m). Moreover, personal transfers by Saudi nationals and non-Saudi nationals declined 33.1 per cent y-o-y and 24.6 per cent y-o-y, respectively in February. Sama foreign reserves marginally declined (-0.5 per cent y-o-y; -1.1 per cent m-o-m) in February.
Further, Saudi unemployment rate declined to 12.7 per cent in Q4 2018 (12.8 per cent in Q3), whereas the Saudi labour force participation rate remained unchanged at 42.0 per cent in Q4 2018.
Meanwhile, the cost of living index remained in the deflation territory for the second consecutive month (-2.2 per cent y-o-y; -0.2 per cent m-o-m) in February. The ‘Housing, Water, Electricity, Gas’ sector (weighing ~25.4 per cent of the index) impacted the most, likely on account of lower housing rentals amid weak demand following expat job losses.
IIP marginally slipped -0.4 per cent q-o-q in Q3 2018, weighed down by the ‘Manufacturing Industry’ and ‘Electricity Supply’ sector (together accounting ~25.7 per cent of the index). Nonetheless, in order to improve investments in the private sector, King Salman has recently launched four new projects worth SAR86 billion ($23 billion) in Riyadh, which will provide investment opportunities worth SAR56 billion for the private sector and help create more jobs for Saudi nationals, the report said.
Overall, Saudi Arabian economy will remain on the trajectory of improvement, on the back of the government’s commitment towards improving the non-oil economy coupled with healthy oil prices, Al Rajhi said in the report.
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