JEDDAH — Saudi Arabia’s economy is into its second year of recovery after contracting in 2017. Driven by record government spending that aims to develop and stimulate the private sector, create jobs, cushion subsidy cuts and diversify the economy, non-oil activity is expected to accelerate from 2% in 2018 to 3.2% in 2021, a new research published by the National Bank of Kuwait (NBK) revealed Sunday.
“Oil sector activity will remain subdued as Saudi Arabia is leading efforts to manage OPEC oil supply. Public finances are improving thanks to higher tax revenues, but the deficit will continue to weigh on public debt. Risks to the outlook stem from continued sensitivity to oil prices, slow diversification, and limited private sector employment growth,” NBK Group Chief Economist Dr. Saade Chami said.
The GCC, as a whole, has seen general improvements, but limited to non-oil. “The GCC non-oil economy has seen general improvements. Higher energy prices, expansive public investments and private sector stimulus programs have spearheaded output gains. Looking forward, across the region governments will need to strike a balance between the need for fiscal sustainability and boosting non-oil private sector growth,” he added.
Global macroeconomic forces including lower oil demand and possibly lower oil prices as a result of trade disputes, are likely to have an adverse impact on the region, an impact that could partially be compensated by the expected reduction in US interest rates and consequently in most GCC countries. Further efforts towards diversification and continued progress in fiscal, private sector and regulatory reforms will be needed in the medium term.
Kuwait economic growth will remain steady in the 1-3% range over 2019-21, capped by oil sector growth as a result of the recently extended OPEC+ agreement. With accommodative monetary policy and expected increase in public spending, non-oil growth will rise gradually to 2.8% by 2021.
“Kuwait’s fiscal balance might register its first surplus in four years, a result of higher oil prices and lower spending. The country’s substantial financial buffers provide a cushion against adverse shocks. However, with expected widening of budget deficits, fiscal reforms will be necessary to reduce pressure on the General Reserves Fund. Boosting private sector growth is critical for creating jobs for the increasing number of Kuwaitis entering the labor force,” Dr. Chami said.
Meanwhile, the UAE economic growth should trend higher over 2019-2021, led mainly by ongoing gains in non-oil sector activity and by a pick-up in the oil economy. NBK foresees real GDP growth edging up from 2.2% in 2018 to around 3.0% in 2021.
While the UAE could be affected by trade tensions, slowdown in global economic growth, and oil price movements, the recently announced growth-enhancing structural reforms are likely to temper these risks and support growth going forward.
“Accommodative monetary policy, supported by the low global interest rate environment, improved public finances, policy-making agility and pro-investment reforms will provide impetus for stronger economic performance,” Dr. Chami added. — SG
