Saudi economy improves as COVID-19 pressures ease: Al Rajhi Cap

Saudi Arabian economy is improving as pressures resulting from COVID-19 pandemic ease, supported by a string of measures adopted by the government, Al Rajhi Capital said in a recent report.

The report noted that while the Saudi Arabian Monetary Authority’s (SAMA) foreign reserves in July declined on a yearly basis, they saw an increase on a monthly basis. The reserves were down 11% in July year-on-year (YoY), but rose 0.1% month-on-month (MoM).

Banking sector profits declined 4.1% YoY to SAR 4.31 billion in July 2020 (against a slump of 431% YoY in June 2020), most likely due to the increased provisions, the research firm said in the report published on Sept.1.

Money Supply (M3) continued to grow in July, rising 9.5% YoY to stand at SAR 2.05 trillion, supported by rise in both M1 and M2.

According to the weekly money supply data by SAMA, M3 may be higher in August than in July, Al Rajhi Capital said.

Credit to the private sector grew 13.2% YoY (+0.8% MoM) in July 2020, while bank claims on public sector advanced 19% YoY (+1.6% MoM) in the same month.

Deposits, meanwhile, rose 9.4% YoY (against a decline of 0.3% MoM) in July 2020.

Point-of-sale (POS) transactions advanced 33.9% YoY in July, compared to a climb of 78.3% YoY in June. The increase in POS transactions was driven by rise in ‘food & beverages’, ‘restaurants & hotels’ and ‘clothing & footwear’ segments. The ‘transportation’ segment declined 21.4% YoY.

Remittances (personal transfers) by Saudi nationals declined by 29.5% YoY in July (+17.1% YoY in June); however, growth in remittances by non-Saudi nationals improved 32.7% YoY in the same month (+60.2% YoY in June).

Cost of living index continued to climb in July, with index rising sharply by 6.1% YoY during the month (versus a rise of 0.5% YoY in June), driven by increase in Value Added Tax (VAT) from 5% to 15% on July 1. On a monthly basis, the cost of living index increased 5.9% in July.

Crude oil prices (Brent August futures contract) increased 2.8% month-to-date in August 2020, supported by improved investor sentiments following production cuts by major oil producers.

Meanwhile, Saudi Arabia’s crude oil production declined 13.6% YoY (+12.2% MoM), to 8.450 million barrels per day in July, compared to a decline of 23.3% YoY in June, Al Rajhi Capital said.