Fiscal stimulus to push Saudi non-hydrocarbon real GDP growth: BofAML

Saudi Arabia’s fiscal impulse in 2019 would push non-hydrocarbon real GDP growth up by around 0.6 to 0.9 percent all else being equal, Bank of America Merrill Lynch (BofAML) noted in a report on Sunday.

Higher spending is likely to put a floor under non-oil private sector growth, but the impact of recent political uncertainty and labor market reforms suggests no major rebound, the report added.

BofAML said the gradual and sticky move higher in the fiscal breakeven oil price, coupled with the relative erosion of fiscal buffers since 2014, increases the economic vulnerability to a sustained drop in oil prices.

“2019 budgeted revenue numbers are consistent on our estimates with an internally budgeted oil price assumption of around $80 a barrel and oil production at 10.2 million barrels per day (mbd). The budget itself would break even at around $93 barrel. We estimate the government's medium-term framework is now budgeting for oil prices to average around $83 barrel over 2020-23, and increase to around $86 barrel in 2023,” the report noted.

“We keep our estimate of $60 barrel as the minimum oil price required to support an adjustment of fiscal imbalances towards mid-single digits over the medium-term, assuming reforms continue to plan. We continue to expect near-term political and policy-making continuity. Financially significant US measures remain unlikely,” it further added.