ECONOMIC TRENDS

STRONG FISCAL POLICY PUTS SHINE ON SAUDI’S ECONOMIC GROWTH IN 2022

The Saudi economy continues to impress as it enjoys another growth spurt in the third quarter, with real gross domestic product expanding by 8.6% compared to the same quarter in 2021.

The growth was mainly due to a 14.5% increase in oil activities during the period, while non-oil activities rose 5.6%, and government services activities were up by 2.4% (year on year), according to the General Authority for Statistics (GASTAT).

“Seasonally adjusted real GDP increased by 2.6% in Q3/2022 compared to the previous quarter Q2/2022. Oil activities grew by 5.8%, government services activities by 1.1%, and non-oil activities by 0.2% (quarter on quarter),” GASTAT noted.

The country’s real GDP is expected to register an 8% surge in 2022,with both the oil and non-oil GDP contributing to economic growth. The Ministry of Finance predicts non-oil GDP to soar 5.9% in light of the positive economic indicators during the first half of the year.

Some of the increase will be led by the wholesale and retail trade, restaurant, and hotel industries, as a result of the government’s decision to lift pandemic-related precautionary measures in a bid to expand the capacity of economic activities, such as those during the Hajj and Umrah seasons.

“The activity of manufacturing industries is also expected to grow, driven by the growth in the number of factories that have started production since the beginning of the year until June of FY 2022, which are about 721 factories, with a total investment of SAR 19.1 billion, according to data from the Ministry of Industry and Mineral Resources,” the ministry mentioned in its Q3 budget performance report.

Private investment also jumped 21.9% during the first half of the year, compared to the same period last year, while foreign direct investment (FDI) surged 9.5% in the first quarter of 2022 versus the same period last year. The number of completed investment deals in the first half of FY 2022 reached 150 deals, which will reflect positively on the domestic economy.

“Moreover, the improvement in economic performance has also played a major role in the decline in the unemployment rate for Saudis during second quarter of this year, as the rate decreased to 9.7% compared to 11.0% at the end of FY 2021. This is the lowest unemployment rate in the past 10 years,” the ministry noted.

  

Saudi Arabia’s purchasing manager index (PMI) also showed robust growth in October. S&P Global PMI data reflected the strengthening of business conditions in the non-oil private sector economy in October, as strong demand and rising new work inflows supported a sharp rise in activity.

“Firms in the survey panel commonly reported improving domestic economic conditions and softening inflationary pressures, which led to the most optimistic outlook for future output since the beginning of 2021,” S&P said.

Meanwhile, suppliers’ delivery times continued to shorten at the start of the fourth quarter, enabling firms to raise their purchasing activity and inventories. Employment also rose, albeit only slightly, helping businesses to meet outstanding work and keep capacity levels strong.

The survey also pointed to optimism for the new year. Output expectations climbed to their highest level since January 2021, as panellists cited hopes of higher sales and sustained economic growth.

Firms also raised their inventory levels in anticipation of higher sales, while businesses reported a slight increase in employment, which supported a further reduction in backlogs of work.

Encouragingly, inflationary pressures softened notably in October, with companies reporting the slowest rise in input costs for eight months.

“In fact, only 4% of respondents noted higher expenses since September, as wage costs were broadly stable after seven consecutive months of inflation. Output charges subsequently rose only modestly, with upticks led by wholesale & retail and services firms,” S&P noted.

Government projections indicate that inflation for fiscal year 2022 may be about 2.6%. While global inflation rates remain high, inflation in the kingdom has been contained after authorities took proactive measures to limit the impact of the increase in costs, such as setting a ceiling on gasoline prices.

“Moreover, the government has also enhanced the social benefits and subsidies schemes through the additional support to the beneficiaries of social insurance, the Citizen’s Account program, and the Small Livestock Breeders Support Program,” the government said in its Q3 budget performance report.