ECONOMIC TRENDS

SAUDI’S ECONOMIC RECOVERY SHIFTS UP A GEAR

After a tough 2020, the Saudi economy is expected to rebound impressively according to the country’s central bank.

“The economy started to show an improvement with policy measures and initiatives taken by the Saudi authorities in support of non-oil private sector activity,” SAMA stated in its Financial Stability Report, released in May.

“Accordingly, the 2021 outlook for the non-oil sector is more positive as precautionary measures can be lifted domestically, which should stimulate the wholesale and retail sectors, and as the vaccine rollout proceeds.”

Indeed, a combination of the oil market recovery and policy measures should bode well for growth in 2021, eclipsing any transient risks, the bank noted.

Equally crucial, the report also underscored the resilience of the country’s financial institutions, stating that they are well-positioned to propel the economy forward.

SAMA noted that the kingdom’s financial institutions' balance sheets had been sound and robust going into the pandemic in early 2020, and there were no systemic solvency concerns since then. 

“The Saudi Central Bank and more than 22 other public entities responded with the most appropriate support measures at their disposal,” the bank noted. 

In the first phase of the pandemic, the central bank established an internal task force to assess the potential impact of COVID-19; and then a stimulus package helped support the economy.

“For the remainder of 2020, the stimulus package programmes were renewed on several occasions to remain as a safety net for the economy,” the bank noted. “Even though the vaccine is rolling out in 2021, the impact of the pandemic on the Saudi economy will likely continue for at least the remainder of the year.”

The Ministry of Finance said the efforts by both the monetary and fiscal policymakers helped the kingdom cushion the blow and achieve positive results during a challenging time for the global economy.

“Such results have been achieved despite the impact of the COVID-19 pandemic, fluctuations in oil prices, sharp economic fluctuations, declining in global demand, receding growth and other challenges that the Saudi government has risen to,” said Mohammed Al-Jadaan, the minister of finance. 

“The continued implementation of Vision 2030 programmes, plans and goals has enabled the kingdom to introduce many economic and structural reforms that demonstrate the efforts in developing the financial sector in the kingdom and achieving fiscal sustainability that enhances the Saudi economy's strength despite all the challenges.”

The non-oil private sector is also reporting robust economic activity. The kingdom saw its non-oil sector activity grow at its fastest rate in 18 months, according to IHS Markit.

“Saudi Arabia's non-oil sector continued to enjoy a strong recovery in May, led by a sharp rise in output that was the quickest since the end of 2017. Firms often cited growth in new business and a notable pick up in export sales,” said David Owen, Economist at IHS Markit.

A majority of the firms continued to operate with unchanged workforce numbers, suggesting a focus on boosting productivity back to pre-COVID levels. 

“On the plus side, inventories were increased at the quickest pace in a year-and-a-half as firms prepare for a further recovery in demand over the coming months," Owen added.

The surge in women’s participation in the labour market has also boosted the kingdom’s economic prospects. This development has been recognised by the International Monetary Fund and other international institutions.

“In a relatively short time span of just two years, the labour force participation rate of Saudi women increased from 20% in late 2018 to 33% by the end of 2020 – that is to say that the share of Saudi women in the labour market expanded by an incredible 64% in just two years,” according to Washington-based The Brookings Institution.

The think tank noted that women of all ages are joining the labour force in the kingdom at higher rates. In the past two years, Saudi women between the ages of 40 and 54 have seen a 20-percentage-point increase in participation, while most of the other age groups displayed an increase of at least 10 percentage points.

“It seems that these reforms are starting to pay off. After all, Saudi Arabia’s Vision 2030 reform programme has an explicit objective to increase the female labour force participation rate to over 30%. For now, it looks like this objective was achieved 10 years early,” Brookings noted.