Economic Research | Country Risk Weekly Bulletin | Country Risk Weekly Bulletin 542 | Saudi Arabia's real GDP growth to average 2.5% in 2018-19 | Lebanon | Byblos Bank

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Byblos Bank

Country Risk Weekly Bulletin 542

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Saudi Arabia's real GDP growth to average 2.5% in 2018-19

The Institute of International Finance projected Saudi Arabia's real GDP to grow by 2.2% in 2018 and 2.7% in 2019, following a contraction of 0.9% in 2017, supported by higher public spending and increased oil production. It forecast hydrocarbon output to grow by 1.3% this year and by 3.3% next year relative to a contraction of 3.1% in 2017, while it expected non-oil real GDP growth at 2.9% in 2018 and at 2.2% in 2019 relative to 0.9% last year, mainly due to higher public consumption and investment in response to the government's fiscal stimulus. However, it estimated non-oil real GDP growth to have remained below 1% in the first half of 2018, due to weak private investment. Further, it expected the average inflation rate at 3.3% annually during the 2018-19 period, compared to -0.8% in 2017.
                    
In addition, the IIF forecast the Kingdom's fiscal deficit to narrow from 8.9% of GDP in 2017 to 5.8% of GDP in 2018 and 6.5% of GDP in 2019, as higher oil revenues will more than offset the anticipated increase in public spending. It considered that, given the high volatility of oil prices and sustained wide fiscal deficit, a rapid increase in public spending could become unsustainable in case oil prices fell. It projected the public debt level to gradually increase from 17.5% of GDP at end-2017 to 21% of GDP at the end of 2018 and 25.8% of GDP at end-2019, and expected it to remain below 30% by 2020. In parallel, the IIF forecast the current account surplus to widen substantially from 2.2% of GDP in 2017 to 10.6% of GDP in 2018 and 7.6% of GDP in 2019, supported by higher oil export receipts. Also, it projected foreign currency reserves to increase modestly from $496bn at end-2017 to $532bn at end-2018, as net capital outflows will remain large. The IIF noted that the recent tighter monetary policy and rise in borrowing costs, following the U.S. interest rate hike, will partially offset gains from the expansionary fiscal policy. 
Source: Institute of International Finance
 
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