It’s far from booming, but things are finally starting to look up for Saudi Arabia’s non-oil economy.
Bank lending to private businesses grew last quarter at the fastest pace since 2016 and a gauge of economic activity rose the most in over a year. Consumer spending also improved, albeit slightly.
Early signs of a turnaround suggest that the rout which followed the 2014 oil crash has run its course as a gradual recovery takes hold, helped by an increase in public spending.
While Saudi Arabia is the world’s biggest oil exporter, it’s the non-hydrocarbon sector that acts as the main engine of job creation as Crown Prince Mohammed Bin Salman tries to overhaul the economy. And the fact that unemployment remains near a decade-high shows how difficult his challenge is.
The data is “starting to paint a slightly more positive picture,” said Khatija Haque, head of Middle East and North Africa Research at Emirates NBD, Dubai biggest bank. She expects non-oil gross domestic product to expand 2.7 percent this year, the fastest pace in four years but still way below the average of 6.2 percent between 2000 and 2015.
The Emirates NBD Purchasing Managers’ Index, a measure of business activity in the non-oil private sector, saw the fastest expansion since the last three months of 2017.
The figure belies some other findings, which showed employment declining on a seasonally-adjusted basis in March. While businesses reported new orders and output rebounding, that didn’t translate into hiring.
When the Saudi economy was hammered by the oil slump, credit to private businesses shrunk on an annual basis for 13 months in a row. It started to grow again in April 2018 and has gradually improved since then.
“At least private sector credit is no longer contracting,” Haque said. “There’s been a strong rebound in lending to the construction sector as well as manufacturing and oil and gas over the last two quarters,” she said.
Mohamed Abu Basha, an economist at investment bank EFG-Hermes in Cairo, says the improvement is nothing more than a “very gradual pick-up.” Overall, he said the data show that the economic slowdown “hit bottom in 2018 and we’re seeing stabilization in 2019.”
Despite a drop in ATM withdrawals in March, Saudi residents flashed their plastic cards enough to push transactions up almost 20 percent on an annual basis, pointing to a modest improvement in consumer spending after authorities renewed cash handouts to millions of citizens.
“It’s driven by the fact that you don’t have the same headwinds,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank. “The pace of recovery is muted by other factors such as the levy imposed on expat workers and their dependents.”
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