Related Articles
Forward article link
Share PDF with colleagues

Saudi economy sends mixed signals

While the overall economy is picking up, Saudis are feeling the pinch from subsidy cuts

Saudi Arabia's long-term goal is, to quote Crown Prince Mohammed bin Salman, to end the country's addiction to oil. This is the foundation stone supporting Vision 2030 and the 2020 targets set out in the kingdom's National Transformation Programme. But in the immediate future, oil—and in particular its global price—remains key. Saudi Arabia is leading efforts to encourage Opec and non-Opec producers to stick to their commitment to restrict oil output in order to support prices.

It wasn't always easy. But the strategy has, in the end, been successful. According to the latest report from analyst and consultancy Capital Economics, "the impact of the 2016 Opec agreement to cut oil output has faded. Indeed, based on monthly oil production data, it looks like the oil sector expanded in year-on-year terms in the first few months of 2018".

Capital Economics believes that the Saudi economy is "starting a slow recovery. The downturn deepened at the end of last year, but the latest figures suggest that the economy returned to positive growth at the beginning of 2018". In Q4 of last year the kingdom's economy had contracted by 1.2%, which the consultancy notes was "the worst reading since the 2008-09 global financial crisis".

But if the broad picture is positive, Saudis themselves aren't feeling the benefits. According to Capital Economics, "inflation has eroded households' real incomes. Subsidy cuts and the introduction of a new value-added tax pushed inflation up from -1.1% year-on-year in December to around 3% at the start of 2018. Point of sales transactions, a proxy for consumer spending, slowed sharply at the beginning of this year."

The report adds that the effects of austerity measures "should be mitigated by a raft of public-sector bonuses that were announced in January. And that, together with high public infrastructure spending, should support a recovery in the non-oil sector later this year."

On the evidence thus far, then, progress towards achieving the very ambitious targets outlined in Vision 2030 is likely to be patchy, with the economy continuing to send out mixed signals.

Also in this section
Siccar Point banks on quality
22 January 2019
The North Sea new entrant is relying on its assets base
Canada divided by carbon conundrum
22 January 2019
Canada’s plans for raising carbon tax face mounting political and popular opposition
BWE building on history in the North Sea
22 January 2019
The name Blue Water Energy (BWE) may be new, but the faces are familiar