Saudi Arabia pulls out of recession in Q1; GDP growth at 1.5%: CE

Saudi Arabia’s economy emerged from recession in the first quarter of 2018, with data indicating that a raft of public sector bonuses provided support to the non-oil sector, Capital Economics (CE) said in a recent report.

According to CE’s gross domestic product (GDP) tracker, the GDP growth appears to have picked up to around 1.5 percent year-on-year (YoY) in Q1 2018, compared to a contraction of 0.7 percent over 2017 as a whole.

The oil sector was the main the driver of the recovery, the report said.

“Oil production has been steady at around 10 million barrels per day (bpd) at the start of this year. But what matters for GDP growth is the YoY change in output and, on that basis, the drag from last year’s OPEC-agreed oil output cuts has faded,” the London-based consultancy added.

The non-oil sector appeared to have slowed down in the first three of this year, as non-oil imports continued to decline in YoY terms at the start of 2018.

Consumer-oriented sectors in particular seem to have struggled as a rise in inflation, caused by the introduction of value-added tax (VAT) and administered price hikes, impacted households’ real incomes, CE said.

The report, however, added that the non-oil sector appeared to have passed its recent trough.

Growth in point of sales transactions, a proxy for consumer spending, picked up in the past couple of months. The whole economy PMI – which covers the non-oil private sector – rose in May, the report said.

“Households have started to loosen the purse strings after a raft of public sector bonuses were announced in January. And with the government planning to ramp up infrastructure spending this year, the rebound in the non-oil sector probably has some legs,” CE said.

“We will wait for the Q1 GDP figures before making any forecast changes, but the risks to our expectation for GDP growth of 1.5 percent this year now lie to the upside,” it added.