Jadwa Investment expected Saudi Arabia's economic activity to remain solid despite the implementation of major fiscal reforms since the beginning of 2018. As such, it projected real GDP to grow by 2.2% in 2018 following a contraction of 0.9% in 2017, due to improved hydrocarbon sector activity. It forecast hydrocarbon output to grow by 3.2% in 2018 relative to a contraction of 3% in 2017, driven by an increase in oil production following the OPEC and non-OPEC members' decision to raise output starting in July 2018. It anticipated Saudi Arabia's crude oil output to increase from an average of 10 million b/d in 2017 to 10.3 million b/d this year. Also, it projected non-oil growth at 1.4% in 2018 relative to 1% last year, supported by higher public spending. But it expected the implementation of the value-added tax (VAT) and energy price hikes to weigh on growth in 2018. Further, it projected the inflation rate to average 3.1% this year relative to -0.8% in 2017, due to the introduction of the VAT and higher utility prices. It considered that downside risks to the outlook include lower-than-expected oil prices and delays in capital spending.

In parallel, Jadwa considered that higher oil prices and production in 2018 would improve the Kingdom's fiscal and external balances. It forecast the fiscal deficit to narrow from 9.3% of GDP in 2017 to 3.8% of GDP in 2018 on the back of higher oil output and receipts. It said that authorities have recently announced domestic and foreign debt issuances to finance the fiscal deficit, and expected them to issue further domestic bonds during 2018. As such, it anticipated the public debt level to grow from SAR443bn or 17.2% of GDP at end-2017, to SAR560bn or 19% of GDP at end-2018. Further, it projected the current account surplus to increase from 2.2% of GDP in 2017 to 9.3% of GDP in 2018, as it anticipated oil export receipts to rise from $170bn last year to $223bn in 2018. Also, it forecast foreign currency reserves at the Saudi Arabian Monetary Agency to increase from $496bn at end-2017 to $536bn at end-2018, due to higher oil export receipts and larger portfolio investment inflows.
Source: Jadwa Investment