Saudi Arabian economy has continued to expand for the third straight quarter in 2018 with Q3 2018 GDP increasing at the fastest pace since early 2016, driven by improvement in the oil sector (accounting ~65 per cent of Q3 GDP expansion) on higher oil prices, a report said.

Further, the non-oil sector also aided the economic expansion in Q3, albeit at a slower pace, led by the financial services, manufacturing and government services segments, added Al Rajhi Capital, a leading financial services provider in the kingdom, in its latest Economic Research on Saudi Arabia.

However, the construction sector continued to remain sluggish in Q3, owing to muted capital spending by the government. Nonetheless, we believe that the expansionary fiscal policy for 2019, as announced by the government, will result in pick-up in the non-oil sector in coming quarters, according to the report.
     

Monthly Indicators: Meanwhile, as per the latest monthly economic data released by Saudi Arabian Monetary Authority (Sama), the Kingdom’s economic indicators also showcase a continuous improvement despite weak global sentiments due to the sluggish Chinese economic data along with the prevailing US-China trade concerns.

However, China continues to import oil at a healthy rate. Kingdom’s credit to the private sector rose for the ninth consecutive month (+2.9 per cent y-o-y; -0.8 per cent m-o-m) in December, while credit to the public sector also registered a rise (+16.9 per cent y-o-y; +0.4 per cent m-o-m).

Further, consumer spending has continued to increase in December, as indicated by improvement in POS transactions (+10.4 per cent y-o-y; +12.4 per cent m-o-m) and ATM cash withdrawals (-0.2 per cent y-o-y; +7.1 per cent m-o-m).

Moreover, SAMA foreign reserves remained broadly stable (flat y-o-y; -1.5 per cent m-o-m), on an annual basis, in December. Kingdom has sufficient foreign reserves to plug the fiscal deficit and with low debt to GDP ratio (~20 per cent in 2018; Source: IMF) the country has enough room to issue additional debt, implied by the recent issuance of international bonds worth $7.5 billion.

Meanwhile, Saudi unemployment rate fell to 12.8 per cent in Q3 2018 (12.9 per cent in Q2), whereas the Saudi labour force participation rate remained steady at 42.0 per cent in Q3 2018. We believe that the government’s efforts to increase investments (including NIDLP, Future Investment Initiative, among others) in the private sector should create more jobs and improve employment rate among Saudi nationals in the near term.

“Further, we also believe that the oil prices are not sustainable at these levels and are likely to improve. To summarize, with the government’s commitment to support the economy and the possible rise in oil prices, the Saudi Arabian economy is on the trajectory of improvement,” the Al Rajhi Capital report concluded. – TradeArabia News Service