Expectations about the performance of the Saudi economy for the remainder of 2021 have risen amid strong non-oil sector growth.
Jadwa Investment said in a research note that it expects overall GDP growth in the kingdom to hit 1.8 percent this year, up from a previous forecast of 1.3 percent.
Analysts said both actual and flash estimates of the kingdom’s GDP published by the General Authority for Statistics (GaStat) have shown strong non-oil sector growth in the first half of 2021.
“This combined with our expectation of continued growth in H2, has led us to upgrade our full year 2021 GDP forecast,” said Jadwa.
Most non-oil high frequency data has improved consistently since the start of the year, with a dramatic rise in economic activity during Q2, it noted.
Jadwa analysts added that while the rebound is no surprise, some sectors have performed better than anticipated, notably real estate, non-oil manufacturing and retail and tourism.
“We see oil GDP being marginally down year-on-year, at -0.7 percent but with non-oil growth rising by 3.5 percent, primarily because of higher non-oil private sector growth of 4.4 percent,” the research note said.
On the fiscal side, an upward revision in Jadwa’s full year Brent oil forecast to $67 per barrel means it now expects government oil revenue to total SR568 billion in 2021 compared to SR528 billion.
Concurrently, with no changes to government expenditure, Jadwa said it sees the fiscal deficit totalling SR67 billion (2.1 percent of GDP), 53 percent lower than budgeted by the Ministry of Finance (MoF).
Jadwa said: “Looking ahead, the main risks to the Saudi economy are related to the potentially disruptive nature of Covid-19, or, more specifically, its variants, with the Ministry of Health recently noting the presence of the delta variant in the kingdom.
“That said, with high levels of vaccination rates and projected herd immunity by Q4, we remain confident that the overall business environment will continue improving in the remainder of 2021.”
Saudi Arabia’s exports rose 99.4 percent during the second quarter of the year on an annual basis, driven mainly by the easing of Covid-19 lockdown measures and a recovery in oil prices.
Earlier this year, Saudi Arabia ramped up the pressure on international firms to shift their Middle East hubs to the kingdom when it was announced that, starting on January 1, 2024, government and state-backed institutions will stop signing contracts with foreign companies that base their Middle East headquarters in any other country in the region.
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