Dubai: Latest macroeconomic indicators from Saudi Arabia points to a sustained recovery in the economy supported by improving consumer spending, corporate and banking sector earnings and gains in government revenues, according to analysts.

A recent analysis from Arqaam Capital showed the Kingdom witnessed strongest consumer spending numbers up 9 per cent, year on year, in the third quarter of this year more than expected after a weak first half of 2018.

The International Monetary Fund (IMF) has forecast a real GDP growth of 1.9 per cent in 2018, with non-oil growth strengthening to 2.3 per cent. The pickup in GDP growth follows a negative growth of 0.9 per cent in 2017. GDP growth is expected to pick up further over the medium-term as the reforms take hold and oil output increases.

The fiscal deficit is projected to narrow to 4.6 per cent of GDP in 2018 from an estimated 9.3 per cent last year. Higher exported oil, domestic energy, and non-oil revenues more than offset additional capital spending, compensatory payments to households through the citizens’ accounts, and the cost of the January Royal Decree, which introduced monthly allowances for public sector workers, retirees, students, and those on social benefits through end-2018 (1.8 per cent of GDP).

Latest data showed aggregate consumer spending as indicated by point of sales (POS) and ATM withdrawals registered a 16 per cent year on year growth in September and 9 per cent in the third quarter of 2018 compared to 5 per cent in the second quarter over the first quarter.

“The strength was broad-based, impacting most of the sectors. We expect the recovery to continue into fourth quarter of 2018 and beyond as the government commits to the ‘Citizen’s account’ and ‘Cost of living allowance’ in the pre-budget announcement and announces the yearly wage hike for public sector employees (to be effective as of January 19),” said Jaap Meijer, Director of Research at Arqaam Capital.

Credit growth

Although credit growth remains tepid at 1.5 per cent year on year, it registered the strongest growth since yearend 2016. “We expect it to further pick up by yearend 2018 and 2019, mainly on new project awards,” said Meijer.

Saudi bank earnings were up 9.2 per cent were up 9.2 per cent in the third quarter on the back of improving margins. Net interest income grew 9.7 per cent and the net interest margins (NIMs) expanded by 25bps year on year, as asset yield improvement continued to outpace the increase in funding costs amid strong liquidity.

Data showed FX reserves were down slightly in September, despite high current account surplus. FX reserves fell by $2.4bn in September to $507 billion, down -0.5 per cent month on month, still up by 4.5 per cent year on year and 2.2 per cent year to date.

“The higher oil price has had a significant positive impact on the current account balance, but investments abroad, particularly by the Public Investment Fund (PIF), continue to put pressure on reserves, in our view,” said .

Analysts expect to see some pressure on reserves in October on the back of foreign outflows from the Kingdom, mostly from the equity market.

The IMF estimates non-oil growth to strengthen to 2.3 per cent this year supported by higher on and off-budget fiscal spending and higher oil prices, although rising interest rates could act as a drag.


Saudi appetite unchanged by Khashoggi death

HSBC Holdings Plc, one of the most active global banks in Saudi Arabia, says interest in doing business in the kingdom will be unaffected by the furor over the murder of journalist Jamal Khashoggi.

“Longer term impact on our appetite for Saudi Arabia, I don’t think it has any impact,” Chief Executive Officer John Flint said in a phone interview Monday. “It’s an important part of the global economy. In the emotion of the last few weeks, it’s been easy to forget that the world is very dependent on energy from Saudi Arabia and many other things.”

Flint joined chiefs of some of the world’s biggest banks in pulling out of an investment conference in Riyadh this month as pressure built on Saudi Arabia amid allegations it killed the dissident journalist. But the London-based lender was represented by Samir Assaf, head of its global banking and markets division. The decision enabled HSBC “get to the right place,” Flint said and declined to comment on why he didn’t attend.

“It’s been a tough couple of weeks for the kingdom,” said Flint. “It’s been sad to watch this play out.”