Saudi Arabia forecast to see 2.1% economic rebound but uncertainty weighs

Jadwa Investment said in a new research note that it expects to see a “broad-based recovery” in 2021 despite a “considerable degree of uncertainty” about the continuing impact of the pandemic on the non-oil sector.

Its forecast assumes between 15-20 percent of the adult population being vaccinated against Covid-19 by mid-year, and 70 percent by year-end.

“As such, we see a quarter-on-quarter improvement in the Saudi non-oil economy, with this recovery being more vigorous in the second half of 2021,” Jadwa analysts said.

Provisional full year GDP data for 2020 showed that the economy contracted by 4.1 percent but Jadwa forecasts overall GDP in 2021 rising by 2.1 percent year-on-year, with both the oil and non-oil sectors contributing to the rebound in growth.

More specifically, Jadwa said it expects to see oil sector GDP rising by 1.3 percent, with the lion’s share of growth being driven by the non-oil sector, which we forecast will rise by 2.7 percent year-on-year.

Expansion is likely in the retail, restaurants and hotels sector, especially as restrictions around social distancing are gradually relaxed and there is a steady pick-up in entertainment and domestic tourism activities.

At the same time, Jadwa also sees the construction and transport contributing to growth.

Saudi Arabia is forecast to see a 2.1 percent rebound in economic growth this year on the back of the kingdom’s coronavirus vaccination roll-out.

“In construction, the sector should continue benefitting from work on a number of Public Investment Fund’s (PIF) mega-projects. In transport, the economic benefits from the completion of SR87 billion worth of projects during the year will help push up sectorial GDP,” analysts noted.

Last year, the kingdom’s strict adherence to OPEC+ crude oil production targets most likely pushed the oil sector’s share in total GDP to the lowest level on record, Jadwa added.

Looking ahead, a unilateral reduction in oil output by the kingdom during most of Q1 and continued compliance with the OPEC+ agreement will not help raise the sector’s contribution by a huge amount in 2021, analysts predicted.

However, some growth is expected to come from the opening of the Jazan refinery and from an expansion in natural gas output.

On the fiscal front, Jadwa said it estimates that higher yearly oil prices and the continued payment of dividends by energy giant Aramco will raise government oil revenue to SR491 billion.

At the same time, analysts expect non-oil revenue to be effectively flat on a year-on-year basis, at around SR360 billion, taking total government revenue to SR851 billion in 2021.

Jadwa also sees the construction and transport contributing to growth.

With expenditure expected to decline by 7 percent year-on-year to SR990 billion, the fiscal deficit will narrow to SR139 billion or 4.8 percent of GDP.

Jadwa analysts added: “Overall, it is worth noting that the range of potential effects of Covid-19 on the kingdom’s economy still remain uncertain at this moment. The main risk in the outlook comes from a more prolonged and serious outbreak of a second wave of Covid-19, possibly through a variant of the disease, or due to a slower rollout of the vaccine than currently anticipated.

“In this context, the recovery in the Saudi economy during the year will not be smooth, with the recent suspension of recreational activities illustrating this point. As such, all economic risks in the year ahead are wholly skewed to the downside.”