Saudi Arabia’s austerity measures will weigh heavily on consumer spending in 2017 with households cutting back on “non-essential” expenses, according to BMI Research.
In its latest country report, the Fitch Group firm reiterated its previous forecasts that the kingdom's economy would fall into recession next year, as fiscal consolidation and oil production cuts impact economic activity.
It forecasts real gross domestic product (GDP) growth to decline by 0.2 percent in 2017 - the first annual contraction since 1999 - compared to 0.8 percent in 2016.
“Saudi consumer will be hit hard as a result, with private consumption expected to grow at a subdued one percent year-on-year next year - the lowest rise since 2002,” the report said.
It noted that, in the third quarter of 2016, point-of-sale transactions contracted 11 percent year-on-year while growth in consumer credit remains sluggish.
Fiscal reforms implemented from October 2016 will continue to directly impact household income as public sector workers make up two-thirds of the labour force, BMI added.
Under the austerity measures, the government has cut salaries of public sector workers by almost 20 percent while bonuses for working overtime have also been reduced.
“The fall in consumer purchasing power will lead households to cut back on spending in 2017, particularly in terms of ‘non-essentials’. Meanwhile, retailers will brace themselves for lower demand, delaying hiring and investment,” the report said.
Saudis topped the list of visitors to the UAE with over one million visitors in 2015, while they are among the top buyers of properties among Gulf buyers, investing $1.09 billion (AED4bn) in the first half of 2016.For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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