Saudi Arabia: Gradual uptrend in growth continues

3 min
Manfred Stamer
Manfred Stamer Senior Economist for Emerging Europe and the Middle East

Real GDP growth accelerated to +2.5% y/y in Q3 from +1.6% in Q2 thanks to higher oil prices and increased oil production, taking the increase in the first three quarters of 2018 to +1.7% y/y. Supply-side data show that the oil and gas sector rose by +3.7% y/y in Q3, up from +1.3% in Q2, while the expansion in the non-hydrocarbon sector eased to +2.1% y/y from +2.4%. Meanwhile, the government approved an expansionary budget for 2019, with spending to be boosted by +7.3% vs. 2018. This reflects a prioritization of growth over deficit reduction notwithstanding the recent fall in oil prices and the decision by OPEC (and Russia and some other oil producers) in early December to renew oil output cuts in 2019. Overall, for 2019 we forecast full-year GDP growth of +2.5% (after +2% in 2018) and the fiscal deficit to widen to -5% of GDP (from -4.7% in 2018). On the political front, King Salman announced significant changes to the cabinet at end-December in response to the killing of the journal­ist Khashoggi in the Saudi consulate in Turkey in October 2018 which shook up relations with the West. However, Crown Prince Mohammed bin Salman, the country’s de facto leader, retained all his posts.