With fiscal consolidation progressing, amid weakening investor and consumer sentiment, both government and private consumption are expected to slow in 2016. Based on Q1 performance (Figure 2), oil production is unlikely to fully offset these losses. Overall, growth is projected to slow to 1.0% in 2016 and to accelerate gradually to 1.6% and 2.5% in 2017 and 2018, respectively.
On the external side, the current account is projected to remain in the red, at 9.5% of GDP in 2016. Going forward, export prices should recover gradually in 2017 and 2018. With slower recovery in imports, the current account should revert to small surpluses from 2018 onwards.
The fiscal outlook is stable in the short term with large reserves held by SAMA. However, with US$43 average oil price in 2016 (the latest World Bank projections) current fiscal measures are insufficient, and the fiscal deficit is projected to remain at 13.6% of GDP. Efforts to raise non-oil revenues will likely yield some (albeit modest) savings and expenditure cuts will occur gradually, focusing primarily on the capital budget. These measures are projected to gradually reduce the overall fiscal deficit-to-GDP ratio.
Inflation should be restrained by fiscal contraction on the demand side, but be supported by hikes in utility prices. Social indicators may deteriorate along with fiscal consolidation and lower incomes, but data to assess the risks and vulnerabilities are not available.
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