Saudi GDP set to rise 2.1% in 2021; second COVID-19 wave could derail economy

Trade, hospitality, construction to lead the recovery subject to successful vaccine rollout

Image used for illustrative purpose. Riyadh, capital of Saudi Arabia.

Image used for illustrative purpose. Riyadh, capital of Saudi Arabia.

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Saudi Arabian investment bank, Jadwa Investment, expect a broad-based recovery for the kingdom in 2021 with both oil and non-oil sectors contributing to the rebound.

“Our forecast assumes between 15-20 percent of the adult population being vaccinated against COVID-19 by mid-year, and 70 percent by year end. As such, we see a quarter-on-quarter improvement in the Saudi non-oil economy, with this recovery being more vigorous in the second half of 2021, Jadwa said in a new report.

Jadwa, however, cautioned that the range of potential effects of COVID-19 on the economy remained uncertain. The main risk in the outlook comes from a more prolonged and serious outbreak of a second wave of COVID-19, possibly through a variant of the disease, or due to a slower rollout of the vaccine than currently anticipated, it noted.

“In this context, the recovery in the Saudi economy during the year will not be smooth, with the recent suspension of recreational activities illustrating this point. As such, all economic risks in the year ahead are wholly skewed to the downside.”

Provisional full year GDP data for 2020 showed that the economy contracted by 4.1 percent.

“Looking ahead, we see overall GDP in 2021 rising by 2.1 percent year-on-year, with both the oil and non-oil sectors contributing to the rebound in growth. More specifically, we expect to see oil sector GDP rising by 1.3 percent, with the lion’s share of growth being driven by the non-oil sector, which we forecast will rise by 2.7 percent year-on-year.”

Wholesale and retail trade, restaurants and hotels are likely to lead the rebound as restrictions around social distancing are gradually relaxed and there is a steady pick-up in entertainment and domestic tourism activities.

Construction, transport, storage and communication sectors are also expected to contribute to growth. The construction sector should continue to benefit from work on Public Investment Fund’s (PIF) mega-projects.

In transport, the economic benefits from the completion of 87 billion riyals ($23 bln) worth of projects during the year will help push up sectoral GDP, Jadwa Investment said.

Within the oil sector, some growth is expected to come from the opening of the Jazan refinery and from an expansion in natural gas output. The unilateral reduction in oil output by the Kingdom during most of Q1 and continued compliance with the OPEC+ agreement on reduced crude oil production targets will not help raise the sector’s contribution by a huge amount in 2021, the report noted.

On the fiscal front, the higher yearly oil prices and the continued payment of dividends by Aramco will raise government oil revenue to 491 billion riyals.

“At the same time, we expect non-oil revenue to be effectively flat on a year-on-year basis, at around 360 billion riyals, taking total government revenue to 851 billion riyals in 2021. With expenditure expected to decline by 7 percent year-on-year to 990 billion riyals, the fiscal deficit will narrow to 139 billion riyals or -4.8 percent of GDP.”

(Reporting by Brinda Darasha; editing by Seban Scaria)

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© ZAWYA 2021

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