We have revised our forecast for the Saudi economy and now expect to see growth of 2.2 percent in 2018 (compared to 1.5 percent previously). The sizable rebound in growth will be partly driven by an improvement in the oil sector.
We expect Saudi crude oil output to average 10.3 million barrels per day (mbpd) over the course of the year, up from 10.1 mbpd previously. As oil outages continue from OPEC members such as Libya and Venezuela, and US sanctions begin to take effect on Iran, we expect Saudi Arabia to make up a large portion of the expected deficit in oil market balances in H2 2018.
On the non-oil side, we have maintained our forecast for non-oil GDP at 1.4 percent (compared to 1.0 percent in 2017). Within this forecast, we still expect to see non-oil private sector growth of 1.1 percent, compared to 0.7 percent in 2017.
In fact, recently released GDP data shows that the Saudi economy is performing relatively well despite the implementation of major structural economic reform since the turn of the year. The Kingdom’s economy expanded by 1.2 percent in Q1, with non-oil private sector GDP rising by 1.1 percent.
Meanwhile, we have also revised our oil price forecast for 2018, and now expect Brent oil to average $68 per barrel (pb) in 2018, up from $60 pb previously. The combination of higher oil prices and crude oil production will push up government oil revenue to SR576 billion in 2018, against budgeted oil revenue of SR492 billion.
That said, higher than budgeted oil revenue will not result in higher government expenditure, but rather, it will contribute to lowering the fiscal deficit. As a result, we now expect the Kingdom’s fiscal deficit to decline to SR111 billion, or 3.8 percent of GDP, versus SR195 billion outlined in the 2018 fiscal budget statement
Source: Jadwa Investment
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