Saudi GDP growth to weaken further

Saudi Arabia’s economy slowed at the start of this year and we think that further weakness lies in store. Figures released in the past month showed that economic growth slumped from 3.6% y/y in Q4 2018 to 1.7% y/y in Q1 2019. OPEC’s decision to extend its oil output cuts until March next year means that the drag from the oil sector will intensify in the coming months. And there are already signs that the recent pick-up in growth in the non-oil sector may have run its course. What’s more, if oil prices stay low as we expect, fiscal policy is likely to be tightened again. This will outweigh any boost from looser monetary policy – the dollar peg means that the Kingdom will follow the Fed in cutting interest rates next week. Overall, we think that the Saudi economy will expand by just 0.3% this year. Most other forecasts look too optimistic – in fact, the IMF revised up its GDP growth forecast for Saudi Arabia yesterday to 1.9%.