ECONOMIC TRENDS

SAUDI’S POST-PANDEMIC RECOVERY LEAPS FORWARD

Saudi Arabia’s economy is powering ahead with a strong showing in the second quarter.

The kingdom’s real gross domestic product grew 12.2% in the second quarter of 2022 compared to the same period last year, according to the General Authority for Statistics’ (GASTAT) latest report.

The economy expanded 2.2% from the first quarter, the data showed, thanks to higher crude prices, which pushed the sector’s growth by 23.5% during the period. Petroleum refining also recorded a yearly growth of 16.6%. In the non-oil sector, restaurants, hotels, wholesale and retail trade increased by 16.4%, versus the second quarter of 2021, according to GASTAT.

The second quarter’s performance exceeded the 11.8% growth estimated by the government at the end of July. Overall, oil activity surged 22.9% and non-oil activities rose 8.2% year on year (yoy). Quarter to quarter (qoq), the oil economy expanded 4.4%.
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“Government activities increased by 2.4% year on year,” the data showed, adding “all economic activities showed positive annual growth in the second quarter of 2022.

Gross fixed capital formation, another key indicator of economic growth, posted its highest growth in Q2/2022 of 28.8% yoy (11.7% qoq), followed by exports 25.2% yoy (5.2% qoq), while imports grew by 18.3% yoy but decreased by 4.4% qoq.

“Government final consumption expenditure grew by 9.0% yoy (8.2%qoq), and private final consumption expenditure grew by 5.5% yoy, while decreasing by 0.5% qoq,” GASTAT noted.

  

The International Monetary Fund expects Saudi Arabia’s economy to be one of the world’s fastest growing in 2022 amid sweeping pro-business reforms, a sharp rise in oil production and crude prices, and recovery from a pandemic-induced recession in 2020. The group expects the country’s GDP to rise 7.6%, the fastest expansion in almost a decade.

“Saudi Arabia is taking impressive steps to improve the business environment, attract foreign investment and create private-sector employment,” the IMF said. “These initiatives, combined with governance and labour market reform, have made it easier to do business (a business can be registered in just three minutes), increased the number of industrial facilities, and raised female participation in the labour force.”

The fund also lauded Saudi policymakers for a string of reforms, including the removal of formal restrictions, and legislation ensuring equality of employment. Meanwhile, female labour force participation has benefited from transport subsidies of up to 80% for the cost of a taxi fare, employer incentives for hiring Saudi women, and childcare support.

“As a result, the proportion of Saudi women in work has doubled in the past four years to 33%, exceeding the 30% target set under the 2030 plan and the 27% average for the Middle East and North Africa,” the IMF noted.

 

BUSINESS SENTIMENT

Businesses are also anticipating a massive growth wave washing over the kingdom. S&P Global’s latest purchasing manager’s index (PMI) saw growth reach a 10-month high in the non-oil economy in August, as improving demand conditions bolstered new business and activity. The upturn prompted a particularly sharp rise in purchasing, the fastest in seven years, as well as further stock building and job creation.

“Non-oil output continued to grow at a marked rate midway through the third quarter of the year, with the pace of growth re-accelerating from the previous month,” S&P said. “Anecdotal evidence from survey panellists suggested that output had mainly increased due to rising new business inflows, which in turn were supported by improving demand conditions.

Total new orders rose at the quickest pace since October last year, driven by improving client demand, higher exports, and a broad recovery in economic conditions since the pandemic.

“The Saudi Arabia PMI pointed to added resilience in the non-oil economy during August, as business activity and sales continued to rise sharply despite reports of mounting global economic distress,” said David Owen, economist at S&P Global Market Intelligence.

 

INFLATION RISES

Inflation across the world is emerging as a major issue, with central banks, led by the US Federal Reserve looking to tame soaring prices with higher interest rates. In Saudi Arabia, the consumer price index (CPI) rose 3%, compared to August 2021, and higher than July’s inflation rate of 2.7%, according to GASTAT.

Food and beverage (F&B) prices rose 4%, mainly due to the cost of food (4.3%), especially meat (+6.7%). F&B accounts for 18.8% of the Saudi consumer basket.

Transport prices increased 4%, mainly due to the higher cost of purchasing cars (+4.7%), while housing, water, electricity, gas, and other fuel prices shot up 2.5%, as a result of the 2.7% hike in residential rents.

Among other major drivers, restaurants and hotels saw a 7.3% increase in prices, while the cost of education rose 5.7%.