Analysts remain upbeat on Saudi Arabia’s growth outlook

In the run-up to Riyadh’s much-anticipated Future Investment Initiative (FII), set to start tomorrow, Argaam has compiled a list of economic forecasts that envision a positive outlook for the Kingdom’s economy.

Higher oil revenues have boosted the Kingdom’s current account surplus, prompting the government to forge ahead with higher budget estimates for the current and upcoming financial year.

According to Saudi finance minister Mohammed Al-Jadaan, the preliminary estimated revenue for 2019 state budget is around SAR 978 billion— an increase of 11 percent compared to the figure of 2018. Meanwhile, the estimated budget for 2019 is expected to reach record level at SR 1.106 trillion.

Going forward, the ministry expects revenues of SAR 1.005 trillion in 2020, while state expenditure is forecast at SAR 1.143 trillion, and budget deficit at SAR 138 billion.

Research and analyst reports project the Kingdom’s economy to accelerate over the next couple of years, as the government boosts spending, while executing a series of structural reforms. Below is a set of expert opinions on where the Saudi economy is heading:

1) IIF: GDP to recover

Washington-based Institute of International Finance (IIF) expected in June 2018 that Saudi Arabia’s real gross domestic product (GDP) will grow by 2.2 percent this year, supported by higher oil prices, increased oil output, and substantial fiscal stimulus spending.

Higher oil prices will provide boost to economic activity, helping the Kingdom strengthen its external position and reduce deficit by nearly three percentage points to 5.8 percent of GDP this year, it added.

2) Fitch: Reforms to boost growth

Also in June, Fitch Ratings affirmed Saudi Arabia's long-term foreign-currency issuer default rating (IDR) at "A+" with a stable outlook.

The ratings are supported by strong fiscal and external balance sheets, including exceptionally high international reserves, low government debt, significant government assets and commitment to an extensive reform agenda, it said.

3) Jadwa Investment: 2018 growth at 2.2%

In July, Riyadh-based Jadwa Investment revised upwards its forecast on Saudi Arabia’s 2018 economic growth to 2.2 percent, from a previous estimate of 1.5 percent.

"The sizable rebound in growth will be partly driven by an improvement in the oil sector. As Saudi Arabia raises oil output, this will positively affect oil sector GDP, lifting it to 3.2 percent in 2018, compared to a decline of 3.0 percent in 2017," it said.

4) NBK: Oil output to rise to 10.2 mpd

In the same month, National Bank of Kuwait (NBK) said in its report that Saudi Arabia's GDP growth is expected to accelerate to 2.2 percent year-on-year (YoY) this year and 1.9 percent next year, as oil output increases and domestic demand recovers.

The improved outlook comes against a backdrop of continuing structural reforms under the ambitious Vision 2030 plan and at a pace less likely to impinge on consumer demand and private sector activity, it noted.

5) Capital Economics: Economic growth to accelerate

In August, London-based Capital Economics noted that rising oil output supported a pick-up in growth in Saudi Arabia at the end of Q2 2018, with the economy set to perform better than most anticipate over the next 12 to 18 months.

"The Kingdom's GDP growth will accelerate over the coming quarters, as oil production is ramped up and looser fiscal policy filters through to the wider economy," the consultancy noted.

6) FocusEconomics: 2019 growth at 2.4%

Spain-based FocusEconomics noted in its September 2018 report that Saudi GDP is expected to accelerate to 2.4 percent next year, up from 1.8 percent projected in 2018.

FocusEconomics Consensus Forecast panelists see fixed investment rising 0.8 percent in 2018, and 4.8 percent in 2019, while inflation is expected to ease to an average 2.2 percent in 2019 from its projected average of 3.1 percent in 2018.

7) S&P: Strong fiscal position

On Oct. 5, 2018, Standard & Poor’s Global Ratings affirmed Saudi Arabia’s long- and short-term ratings at “A-/A-2” with a stable outlook.

The Saudi economic growth is expected to stabilize at an average of 2 percent during 2019-2021, the firm said. The stable outlook is based on expectation that Saudi authorities will take steps to consolidate public finances over next two years, it said.

8) IMF: 2019 growth at 2.4%

On Oct. 8, 2018, the International Monetary Fund (IMF) raised its growth forecast for Saudi Arabia for the third time this year, citing higher oil prices.

In its latest "World Economic Report", the IMF said the Saudi economy, which had contracted by 0.9 percent in 2017, is expected to grow by 2.2 percent this year, up 0.3 percentage points from its July projections.

9) Al Rajhi Capital: Expansionary budget

Same month, Riyadh-based Al Rajhi Capital, said in its report that Saudi Arabia’s preliminary budget estimates for 2019 indicate expansionary spending, as the budgeted expenses have been increased for 2018, 2019 and 2020 by 5 percent, 10 percent and 9 percent, respectively, over previous estimates.

“Hence we expect the coming months and therefore Q4 to see higher than usual expenditure, at around 32-35 percent of the budgeted expenses for the year,” the report added.

10) SICO: Higher expenditure covered

In the same month, Bahrain-based SICO noted in a report that Saudi Arabia is expected to see higher expenditure in the second half of 2018, driven by an increase in capex, but this will be offset by higher revenues.

“Given that Saudi Arabia’s total revenues in H1 2018 reached SAR 440 billion while preliminary estimates point to an estimated FY18 revenue at SAR 882 billion, it effectively implies revenues in H2 2018 will reach SAR 442 billion, +1 percent compared to H1 2018,” it added.

11) MUFG: Budget estimates pragmatic

Saudi Arabia’s recently issued pre-budget 2019 statement is credible, pragmatic and real GDP growth enhancing, MUFG Bank said in a report this month.

The statement “maintains the government’s strategy of a focus on fiscal stimulus rather than austerity. It is clearly evident that the cyclical upswing through higher oil prices continues to offer relief,” it noted.

12) Moody’s: Stable outlook

On Oct. 18, Moody's Investor Service affirmed the Kingdom's A1 rating with a stable outlook and revised up its GDP growth forecasts for the period (2018-2019) to 2.5 percent and 2.7 percent respectively, from previous forecasts of 1.3 percent and 1.5 percent for the same period.

Moody's expects higher oil production to boost the economy, but also expects developments in the non-oil sector to contribute to stronger GDP growth.

Write to Sunil Kumar Singh at sunil.kumar@argaamplus.com