publication April 16, 2018

Saudi Arabia's Economic Outlook - April 2018

The Saudi Arabian economy is projected to expand again in 2018 with a 1.8% increase in GDP mainly due to a moderate recovery in oil production levels (vis-à-vis last year’s sharp cuts) and marginally higher public spending. However, as the negative short-term effects of structural reforms dissipates and government balances improve, it is projected that growth will rise to over 2% in 2019. As the National Transformation Program (NTP)-related reforms and direct government initiatives aimed at the private sector are implemented, while capital spending is simultaneously ramped up, further domestic growth opportunities are foreseen to open up. Crown Prince Mohammed bin Salman continues to have strong popularity, providing a strong signal to investors and the wider public of a longer-term commitment to continue the path of reforms despite the negative perceptions generated by specific initiatives.

With improved economic conditions, and an announcement by authorities of fewer fiscal constraints in 2018, the fiscal deficit is expected to narrow only slightly in 2018 to 7.6%, as a share of GDP. The fiscal outlook incorporates a continued strong commitment to reform efforts.

Recovering oil prices are expected to further strengthen the current account from its estimated surplus of 1.7% of GDP in 2017. Inflation is projected to be considerably more volatile in the coming years, rising to nearly 5% in 2018 and then dropping to below 2% in 2019 as the VAT introduction is absorbed.

While no official information is available, the Kingdom likely faces a looming poverty problem. As in other GCC countries, the bulk of low-income residents are migrant workers, but as the citizen population crosses the 20 million-mark, inadequate access to economic opportunities is also an issue for nationals. With the prospect of low oil prices continuing for longer than expected, the old social contract — one based on government employment, generous subsidies, and free public services — is no longer sustainable. A reform agenda contained in the Vision 2030 document envisages deep structural changes that will profoundly impact the population in all aspects of their livelihoods.