ECONOMIC TRENDS

SAUDI GDP REBOUNDS AS PANDEMIC SHOCK EASES

The Saudi economy has roared back to life with a 2.5% increase in gross domestic product in the fourth quarter of 2020, compared to the third quarter.

The increase shows that the effects of COVID-19 lockdowns and the ensuing economic slowdown are receding, with the government’s efforts to stimulate the economy paying off and starting to trickle down to the private sector.

Top performers in the fourth quarter, compared to the third quarter, were petroleum refining (up 25.5%), community, social and personal services (up 6.7%), and wholesale and retail trade, restaurants and hotels (up 5.7%).

The non-oil sector enjoyed a strong 2.4% expansion in the fourth quarter, compared to the third quarter, while the oil sector saw a 2.6% increase on the back of rising oil prices during the quarter, according to the General Authority for Statistics (GaStats). 

Within the non-oil sector, economic growth in the private sector was 3.2%, quarter on quarter, while the government sector increased by 0.6%, quarter on quarter. 

Like the rest of the world, the Saudi economy is still recovering from the impact of COVID-19, which continues to restrict activity in a number of sectors and has hurt consumer and business sentiment. 

Encouragingly, the private sector economy only shrunk by 0.8%, while the government sector showed a negative growth rate of 1.0% in the fourth quarter, compared to the same period last year. Compared to the same quarter in 2019, GDP growth declined 3.9%, led by an 8.5% contraction in the oil sector and a smaller 0.8% decline in the non-oil sector.

But this was the smallest decline over the past four quarters, compared to the first two quarters, which saw an 8.5% drop each, and the third quarter, which fell 8.5% compared to the same period in 2019.

Year on year, agriculture was the best performing sector, rising 3.6% as Saudi consumers leaned on domestic producers due to global supply disruptions.

Petroleum refining was the next best performer during the period, rising 2.9%, while real estate sector rose 2.6% in the fourth quarter, compared to the same period the year before.

The private sector now makes up 50.5% of Saudi’s economy with the government sector contributing 25.4% and oil sector accounting for 24.1% of GDP.

Saudi Arabia’s trade figures also improved quarter on quarter.

“Comparing the economic development of Q4/2020 to the previous quarter, International trade showed a remarkable pick-up in Q4/2020, with imports of goods and services growing by 21.2% while it was -7.9% in Q3/2020,” said GaStats.

“Exports of goods and services increased by 3.7%, while they were negative by -6.5% in Q3/2020. Government final consumption expenditure increased by 2.4% in Q4/2020, and private final consumption expenditure by 1.5%.”

In other welcome news, the country’s GDP per capita also hit its highest level since COVID-19 impacted economic activity. GDP per capita stood at SAR 19,695 in the fourth quarter, after dipping as low as SAR 16,115 in the second quarter. The country’s GDP was at SAR 22,292 per capita at the end of the fourth quarter. 

PMI MARKIT

Other economic indicators also suggest a strong upturn in the economy. IHS Markit’s monthly purchasing managers’ index (PMI) for February shows continued increase in business sentiment.

“The economic recovery in Saudi Arabia’s non-oil private sector lost some momentum in February, with the PMI dropping from 57.1 in January to 53.9 to signal the softest rate of improvement in four months,” said David Owen, economist at IHS Markit. A figure above 50 points suggests business optimism.

“Nevertheless, the sector remained broadly on the right track, with new business inflows and export sales continuing to rise whilst firms also built inventories in anticipation of stronger future growth.”

Businesses reported strong client demand, which boosted orders and stocks of purchases and an inflow of new work. The improved business confidence was also key factors in higher sales, while businesses surveyed by IHS also pointed to higher demand from international customers.

“In response to sustained growth, companies purchased higher volumes of inputs midway through the first quarter,” IHS noted. “The upturn was much softer than in January, however, largely due to the weaker rise in new orders. Nevertheless, firms continued to build inventories amid hopes of a swift rebound in the economy from the COVID-19 downturn.