The Saudi economy is on track to record a “very strong” level of growth this year, with further expansion next year as the kingdom continues to rebound from the impact of the global coronavirus pandemic, according to new research.
Jadwa Investment said in a research note that it expects the kingdom’s economy to grow by 7 percent year-on-year in 2022 as a result of sizably higher oil sector growth and robust levels of non-oil growth.
With respect to the oil sector, Jadwa said it sees growth driven by higher Saudi crude oil production, in-line with yearly rises in global oil demand.
“We note that about 40 percent of OPEC+’s spare capacity resides with Saudi Arabia, and thus any uplift in demand will likely be met with proportionally higher oil supply from the kingdom,” it added.
On the non-oil side, despite a moderation in year-on-year non-oil private sector growth – largely as a result of the high base of 2021 – the economy will be driven forward by the continued implementation of the Vision 2030, Jadwa noted.
Analysts said the year ahead will mark a “critical phase” in the kingdom’s efforts towards diversifying its non-oil economic base, which will be guided by a set of recently unveiled five year commitments.
At the same time, the Saudi economy will be supported by another sizable outlay in government expenditure, which, despite declining on a yearly basis in 2022, is still set to total just under SR1 trillion, Jadwa added.
Jadwa said the main risk to its forecast is related to the disruptive nature of Covid-19, or, more specifically, to global developments related to the Omicron variant seen in the last few days.
“As it stands, it is too early to gauge the full impact of the variant on the Saudi economy, especially so without knowing to what extent, if any, the variant poses a threat to the current crop of Covid-19 vaccines’ effectiveness,” Jadwa said.
Last month, Saudi Arabia’s credit rating outlook was raised to stable from negative by Moody’s Investors Service, citing the kingdom’s ability to reverse much of last year’s debt increase.
Moody’s affirmed the sovereign at A1, its fifth-highest grade, according to a statement. That’s higher than Fitch Ratings and S&P Global Ratings. The last time Moody’s cut Saudi’s outlook, it highlighted weakening fiscal strength stemming from the severe shock to global oil demand and prices triggered by the Covid-19 pandemic.
The kingdom, one of the world’s top oil exporter, has been trying for years to diversify its economy away from the fuel. That’s mostly reflected by Crown Prince Mohammed bin Salman’s Vision 2030 transformation plan, dependent mainly on mega projects aimed at inducing tourism. Still, more than two-thirds of Saudi Arabia’s exports come from oil.
This reliance will “remain an important feature of Saudi Arabia’s credit profile for many years to come, constraining the sovereign’s ratings,” according to Moody’s.
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