Saudi Arabia's economy set to rebound in 2018, 2019: Riyad Capital

Saudi Arabia's economy is expected to grow by 2.4 percent in 2018 and 2.1 percent in 2019, Riyad Capital said in its latest report on Thursday.

"This rebound after last year’s recession is the combined result of a recovery of the non-oil economy as well as an expected output expansion of the oil sector," the consultancy noted.

The Kingdom's fiscal policy will remain expansionary on the back of substantially higher fiscal revenues as a result of higher oil prices and the recently introduced fiscal reform measures, it added.

In the first half of 2018, the overall economy recovered from last year’s recession, driven by a rebound of both the oil sector and the non-oil sector.  GDP growth continued to accelerate to nearly 2.7 percent in the third quarter 2018 after growing 1.6 percent in the previous quarter.

Earlier this month, the International Monetary Fund (IMF) said the Kingdom's economic growth is set to rise to 2.2 percent and 2.4 percent in 2018 and 2019, respectively.

Meanwhile, foreign currency reserves at Saudi Arabian Monetary Authority, (SAMA), the Kingdom's central bank, stabilized at SAR 1,900 billion in Q3 2018, as government deposits and governmental deposits at commercial banks grew by rose by SAR 51 billion and SAR 29 billion, respectively.

"Overall this reflects the stable fiscal stance of the government with only marginal recent fiscal deficits combined with continued capital market funding activity," the report said.

Saudi oil production and exports of crude and refined products have each increased by 500,000 barrels per day since May 2018.

According to Riyad Capital, the non-oil private sector economy picked-up to 2.1 percent in Q2 2018.

"While the non-oil economy has recovered from its lows at the beginning of the year, there are mixed signals in the recent months with consumer sentiment still improving."

Foreign exchange and credit markets have only moderately reacted on the most recent geopolitical headlines and have already started to gradually reverse, it added.

Meanwhile, the benchmark Tadawul All Share Index (TASI) has experienced a period of increased volatility with elevated trading activity at the beginning of the fourth quarter.

"Foreign investors were net sellers, while government-related entities and institutional DPMs were net buyers. The market correction since summer has also led to more moderate valuation levels, the consultancy noted.