Saudi economic growth set to flatline in 2017 in new era of oil

Jadwa Investment forecasts growth of just 0.1% this year compared to 1.4% in 2016
Saudi economic growth set to flatline in 2017 in new era of oil
By Staff writer
Mon 26 Jun 2017 08:57 AM

Saudi Arabia's economic growth during 2017 is likely to flatline due to a sharp decline in oil sector gross domestic product (GDP), according to analysts.

The latest macroeconomic update from Jadwa Investment forecast growth this year of just 0.1 percent, compared to 1.4 percent seen last year.

It said Saudi Arabia’s commitment to OPEC cuts, which were recently extended by another nine months to March 2018, will result in oil production having negative effects on GDP.

Jadwa analysts forecast that as a consequence of lower oil production, and therefore oil revenue, the 2017 budget deficit is set to hit SR182 billion, 6.9 percent of GDP. 

Jadwa added that the non-oil economy is set to perform better, reaching 1 percent growth during 2017, compared to 0.2 percent in 2016.

Jadwa noted that non-oil GDP will be supported by yet to be realised government capital spending. The recent Q1 2017 budgetary data showed that only 11 percent of estimated capital expenditure, at SR260 billion for 2017, had been used.

The report said that despite a recent rise in interest rates by the US Federal Reserve which saw Saudi Arabia's central bank mirroring the hike, further Fed hikes "will not significantly affect the kingdom’s liquidity situation".

It added that while economic indicators point to a mild improvement, risks do remain. Aside from the risk of another sizable decline in oil prices, there are also the unknown effects on how the economy will react to electricity price hikes, and possibly gasoline and diesel price reform, later this year.

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