Saudi consumer spending growth to stay subdued: CE

Saudi Arabia's consumer spending growth is expected to settle at 2-3 percent over the coming years, well below the 6-7 percent recorded in the previous decade, London-based Capital Economics said in a report on Tuesday.

Household consumption in the Kingdom is expected to remain subdued in the near future, as austerity measures are set to resume in 2018.

Timely indicators signal that consumer spending has not yet strengthened, despite a reinstatement of bonuses and allowances for public sector employees in Q2.

"The worst of the downturn in Saudi consumer spending appears to have passed, but there’s no sign yet that the reversal of civil service benefit cuts earlier this year has boosted the recovery," the consultancy added.

Saudi Arabia’s hotels and restaurants sector, which includes the retail sector, grew by 0.3 percent year-on-year (YoY) in Q1, compared with a 2 percent decline YoY in Q4 2016.

Meanwhile, growth in ATM cash withdrawals and point of sale transactions remains weak, the report said.

The Saudi government is likely to introduce the value-added tax (VAT) and raise gasoline prices next year by as much as 80 percent to bring them into line with international prices, which will also keep spending subdued.

Accordingly, inflation rates are forecast to stand at 4-4.5 percent in early 2018. This, along with limited growth in public sector wages, will lead to an erosion of households’ purchasing power.