Riyadh – Mubasher: Capital Economics’ new report on Saudi Arabia said that its economy “strengthened” in the fourth quarter of 2016 after fiscal austerity adopted by the government eased.
Headline gross domestic production (GDP) growth “is likely to slow sharply in the first half of this year on the back of oil production cuts, but we think the consensus and the International Monetary Fund (IMF) are now overly pessimistic on growth over 2017 as a whole,” the report released Tuesday indicated.
The Kingdom’s official data for Q4-16 will be released at the end of March, Capital Economics noted, adding that its GDP Tracker takes its data from monthly activity data, and “provides a more timely view of how the economy is performing.”
“Our Tracker suggests that growth was broadly steady between November and December, at around 3.5% [year-on-year],” the report stated.
At the level of Q4 as a whole, the research firm’s Tracker shows a 3.3% year-on-year growth, highlighting “a significant improvement compared with official GDP growth of around 1.5% [year-on-year] in the first three quarters of the year”.
“The oil sector posted robust growth, while the non-oil sector continued to recover from its slump earlier in the year,” Capital Economics added.
The research firm expects Saudi Arabia’s non-oil segment to continue to see faster growth in 2017 from the year before.
“After two years of harsh austerity, this year’s budget suggests that little further fiscal consolidation is planned in 2017. The 'whole economy' PMI (which covers the non-oil private sector) has risen for the past four months, reaching its highest level since August 2015 in February,” according to the report.
Survey participants commented that new construction projects will be a key factor in the recent activity upturn.
However, the research firm highlighted that credit growth “slowed sharply” and is likely “to stay subdued” as the US Federal Reserve continues with its plan to hike interest rates.
“Low-level indicators, such as ATM withdrawals and point of sale transactions, suggest that consumer spending has continued to struggle,” the report added.
Headline GDP is likely to be weighed down by the oil sector, particularly after the Kingdom’s output reduction of around 1.8% year-on-year following its agreement to trim production under the agreement by the Organization of Petroleum Exporting Countries (OPEC).
“We expect the oil sector to contract by 1.5% [year-on-year] over the first half of 2017,” Capital Economics said, adding that it expects growth to slow to around 1.0% in 2017, down from a preliminary estimate of 1.4% for 2016.
Capital Economics’ estimate remains above consensus of 0.5% and the IMF’s 0.4%, both of which “appear to have gone too far in expecting significantly weaker economic growth this year.”
