JEDDAH: Leading economic indicators in Saudi Arabia point toward a solid performance in 2015 for the construction and retail sectors, and business surveys point to a continued expansion in the private sector, according to economists.
“We expect the economic performance to be on the upside for the reminder of the year,” said the research team at Jadwa Investment in a recent report.
In real terms, the Saudi economy was 2.4 percent larger in the first quarter of 2015 than in the same quarter of 2014. Year-on-year growth accelerated for the first time in four quarters, Jadwa researchers said, citing GDP data from Central Department of Statistics and Information (CDSI).
“The acceleration was mainly attributed to the oil sector, which grew following two consecutive quarterly declines,” said the researchers.
“We assume that year-on-year economic growth will reach similar levels in the second quarter owing to continued growth in oil production. Other sectors of the economy should continue to benefit from solid local fundamentals,” stated the Quarterly GDP Update from Jadwa Investment.
Jadwa economists predicted that the contribution of oil production to annual economic growth is likely to remain on the positive side.
“We also expect the private sector to maintain solid performance, albeit at a slower pace, as credit growth is expected to moderate and interest rates rise. Year-to-May bank lending maintained positive growth, year-on-year although it is expected to be lower in 2015 than in recent years,” said the report.
“While local fundamentals are solid, with considerable uncertainty over the path of the global economy, we maintain our forecast for total real GDP growth for 2015 at 3.3 percent,” it said.
The report said that growth in Q1 2015 reversed a slowing trend featured in the last three consecutive quarters.
The reversal was mainly due to an increase in oil sector growth, which benefitted from elevated levels of oil production during the first quarter. In addition, all sectors of the nonoil economy grew, with the exception of the electricity, gas, and water sector.
While the oil sector reversed its negative contribution toward overall GDP growth to reach 0.8 percentage points (ppt), the private nonoil sector was once again the main growth driver in the first quarter contributing 1.3ppt. The government contribution improved to 0.5ppt in the first quarter compared with 0.2ppt in the previous quarter.
Nonoil GDP growth expanded by 3.3 percent year-on-year compared with 3.4 percent in the previous quarter and 5.5 percent in the same period last year. While private sector was the main driver of the non-oil sector, its contribution and growth level have continued.
The nonoil public sector expanded by 3.1 percent year-on-year, the second highest sectorial growth in the first quarter.
Most of this growth was sourced from higher government services which expanded by 3.2 percent year-on-year.
“We also expect this expansion in services to translate into higher non-oil revenues for the government budget. However, contribution of government services to overall economic growth is likely to fall slightly over the rest of the year as the high level of demand for government services early in the year is likely to moderate,” stated the report.
The oil sector grew by 1.8 percent, reversing its declining trend in the previous two quarters. This was heavily influenced by the move in oil production, which increased by 0.7 percent over the same period. Despite this increase, the share of the oil sector in overall real GDP fell slightly to 41.7 percent compared with 42 percent a year earlier. As oil production is likely to increase gradually during the summer months owing to rising domestic demand, we see a continuation of elevated levels of oil production persisting through the second and third quarters.
Construction, retail sectors set for solid performance
