Saudi economy improving as COVID-19 situation abates

Saudi Arabia’s POS transactions continued their robust rise, growing 33.9% year-on-year (y-o-y), driven by increase in ‘Food & Beverages’, ‘Restaurants & Hotels’ and ‘Clothing & Footwear’ segments, according to July statistics from the Saudi Arabian Monetary Authority (Sama).

Credit to the private sector grew 13.2% y-o-y, while bank claims on public sector advanced 19% y-o-y and the deposits grew by 9.4% y-o-y, said the Economic Research report from Al Rajhi Capital, a leading financial services provider in the kingdom.

Further, significant growth in mortgage continued with 62% y-o-y growth, driven by house and apartment mortgages, which grew 61% and 89%, respectively.

The credit card loans and consumer loans during the second quarter of 2020 (Q22020) grew 20% and 5% y-o-y, respectively. However, the banking sector profits declined 4.1% y-o-y to SR4.3 billion ($1.14 billion), while Sama foreign reserves fell 11.0% y-o-yin July with a slight improvement from previous month.

KSA reported a trade deficit of SR1.03 billion in June 2020, wherein total exports declined 44% y-o-y. Oil exports dropped 55% y-o-y and non-oil exports decreased 6% y-o-y. The decline in non-oil exports was primarily due to “Plastics & Rubbers” and “Chemical Products”, which declined by 17% and 16% y-o-y, respectively.

However, imports witnessed a rise of 3% y-o-y. The rise in imports was due to 25% y-o-y rise in imports of “Machinery & Electricals” and 33% y-o-y increase in imports of “Chemical Products”. Going forward, economy is expected to continue on its gradual recovery in the remaining 2020 and beyond.

A sharp jump was witnessed in cost of living index, which came at 6.1% y-o-yin July (+0.5% y-o-y in June), mainly driven by rise in VAT from 5% to 15% from July. Further, money supply continued to grow in July (+9.5% y-o-y) supported by increase in both M1 and M2.

However, Index of Industrial Production fell 7.1% m-o-m mainly due to decline in ‘Mining and Quarrying’ by 11.8% m-o-m. Moreover, Remittances by Saudi nationals declined by 29.5% y-o-y in July; while, remittances by non-Saudi nationals advanced 32.7% y-o-y in the same month.

Saudi Arabia launched its first derivative product on Sunday in the form of index futures on the MSCI Tadawul Index (MT30), which constitutes top Saudi liquid stocks. This follows various initiatives introduced by the Kingdom to institutionalize the market and attract foreign investors.

“With this measure, we expect to see further active QFI participation, a gradual increase in trading volumes, enhanced liquidity, lesser volatility as seen in other markets that introduced derivatives,” Al Rajhi Capital said in the report. – TradeArabia News Service