A stronger than expected economic recovery has been seen in Saudi Arabia as the Gulf kingdom looks to rebound from the impact of coronavirus, according to new research.
Jadwa Investment has revised its non-oil GDP forecast for 2020, saying a decline of 2.7 percent is expected this year compared to a previous forecast of 3 percent.
“A less steeper decline than expected in Q2, and a stronger recovery in Q3 has led us to revise our non-oil GDP forecast,” it said in a research note published on Thursday.
In particular, the Wholesale & Retail Trade, Restaurants & Hotels and Construction sectors have been upgraded. Both are still expected to see yearly declines, but at an improved rate compared to Jadwa’s previous forecast. Additionally, it now sees the Finance, Insurance & Business Services sector registering growth during the year, albeit marginally.
“At the same time, with no revisions to our oil GDP forecast (-4.8 percent), and a downward revision to government sector GDP, overall GDP in 2020 is expected to decline by 3.6 percent, marginally better than -3.7 percent previously,” it added.
Looking ahead to 2021, despite there still being a considerable degree of uncertainty as a result of the prevalence of Covid-19, and its potential impact on the non-oil economy, Jadwa said it does nevertheless expect a “broad-based recovery” next year.
The current time-line embedded in its forecast assumes a sizable roll-out of a vaccine by mid-2021.
“As such, we see a sequential quarter-on-quarter improvement in the Saudi economy over the remainder of the Q4 2020 and next year, with this recovery being more vigorous in the second half of 2021,” the research note said.
On the oil side, while its current forecast for Saudi crude oil production assumes OPEC+ adding an additional 1.9 million barrels per day (mbpd) to total output in January 2021, oil output could well be lower than forecast if the alliance tapers back part of the planned rise at an OPEC+ meeting next week, Jadwa added.
On the fiscal side, Jadwa said it now expects the deficit to total SR298 billion (-10.9 percent of GDP) in 2020, down from a previous forecast of SR363 billion (-13.4 percent of GDP).
In 2021, a combination of higher yearly oil revenue and lower expenditure will result in the fiscal deficit narrowing to SR171 billion (-5.6 percent of GDP), Jadwa noted.
But it cautioned: “Overall, the main risk to our forecast relates to a second wave of Covid-19 occurring in the kingdom before the roll-out of a vaccine, or indeed a delay in the current assumed timeline related to the roll-out of an effective vaccine.”
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