Saudi 2019 budget to spur economic growth, says Jadwa Investment

Saudi Arabia's economy will improve next year supported by growth in both the oil and non-oil sector, Jadwa Investment said in a new report.

"Oil sector GDP should show some improvements as oil production rises despite Saudi Arabia complying with the recent OPEC+ cuts. The oil sector is also expected to be helped by the start-up of the large Jazan refinery," it noted.

On the non-oil side, the consultancy foresees economic growth to continue improving on the back of another record level in budgeted government expenditure of SAR 1.1 trillion.

Additionally, it expects non-oil private sector GDP to improve in the year ahead as the economy absorbs the disruptive effects of value-added tax (VAT) and energy price reform enacted in 2018.

However, the report points to risks such as lower than forecasted oil prices and the possibility of a decline in consumption in the Kingdom, given the number of expats and their dependents leave the Kingdom and rising costs for corporates due to higher monthly expat levies.

Despite the risks, Jadwa Investment's believes government expenditure for 2019 as being sufficient to continue supporting positive growth in the non-oil sector.

The 20 percent rise in capital expenditure to SAR 246 billion, the highest budgeted total in four years, will support the development and lift the overall investment profile of the private sector, it added.

In addition, a total of SAR 36 billion will be targeted to support Vision 2030 initiatives, specifically within the housing, mining, energy, manufacturing, transport, entertainment, telecoms and SMEs.

Earlier on Tuesday, Saudi Arabia announced the largest budget in its history projecting a budgeted expenditure of SAR 1.1 trillion in 2019 with revenues expected at SAR 975 billion. The fiscal deficit is, however, is expected to narrow to SAR 131 billion from SARv136 billion in 2018.

According to the government's budget statement, the Saudi economy will grow by 2.6 percent next year, with non-oil GDP growth at 2.5 percent, implying growth of 2.8 percent from the oil sector. 

Inflation is expected to average 2.3 percent in 2019, the statement added.