The slow start to the vaccine rollout in Saudi Arabia, tightening of COVID-19 restrictions and the kingdom’s voluntary oil output cuts in February and January have weighed on activity, said Capital Economics in a new report.

A sustained recovery will be delayed until at least till the middle of the year with the result that the Saudi economy is likely to grow by just 2.3 percent this year, noted James Swanston, MENA economist at the consultancy.

Point of sale transactions and ATM withdrawals figures, proxies for consumer spending, fell at their fastest pace since August in January. At the same time, growth in local deliveries of cement, an indicator of construction activity, slowed from 9.0 percent year-on-year (y-o-y) in December to 5.6 percent y-o-y in January.

On a more positive note, private sector credit growth picked up from 14 percent y-o-y at the end of last year to 14.4 percent y-o-y in January. And the whole economy PMI for January edged up from 57.0 in December to 57.1 as the forward-looking components of the survey turned more optimistic, the report said.

In the oil sector, output continued to rise over the course of Q4 and into January. Production growth picked up from -7.3 percent y-o-y in December to -7.0 percent y-o-y in January. But the kingdom’s voluntary oil output reduction of 1 million barrels per day (bpd) in the first two months of the year will knock 3 percentage points off GDP growth over Q1.

Further ahead, the recovery is likely to remain slow-going. Virus containment measures are likely to stay tight for some time given the slow roll out of vaccines – so far only 1.8 percent of the population has received at least one dose, well short of what is required to vaccinate those most vulnerable to the virus and well behind vaccination programmes in other parts of the region.

The recent rally in oil prices probably has a bit further to run and OPEC+ is likely to agree to lift oil output over the remainder of the year when it meets later this week. But this is unlikely to be enough for the government to row back on last year’s austerity measures and fiscal policy will probably remain tight.

(Writing by Brinda Darasha; editing by Daniel Luiz)

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