Saudi Arabia-based asset management and advisory company Jadwa Investment (Jadwa) has revealed that the kingdom’s economy is on “a very firm footing”, driven by growth in the non-oil sector in the first half of the year, which has laid the foundation for higher economic growth in the second half of 2021.
As the kingdom recovers from the pandemic-induced slowdown, both actual and flash estimates of the country’s gross domestic product expansion point to an increase in economic activity.
Jadwa has raised its full-year GDP prediction from 1.3 to 1.8 percent. It expects oil GDP to decline modestly year over year in 2021, decreasing 0.7 percent, in line with earlier predictions.
However, non-oil growth is expected to grow at 3.5 percent this year, mostly due to non-oil private sector growth of 4.4 percent.
“Most non-oil high-frequency data has improved consistently since the start of the year, with a dramatic rise in economic activity during the second quarter. While the rebound is no surprise, some sectors have performed better than anticipated. More specifically, we see higher growth in … real estate, non-oil manufacturing, and wholesale and retail trade, restaurants and hotels,” Jadwa said.
However, Jadwa’s forecast for the Arab world’s largest economy in 2021 is lower than the International Monetary Fund’s (IMF) forecast of 2.4 percent GDP growth this year. Saudi Arabia’s quick response to the COVID-19 pandemic, the recovery of its non-oil sector, and investment from its sovereign wealth fund, the Public Investment Fund, would all help the country thrive this year, according to the IMF.
Saudi Arabia, OPEC’s top oil exporter, is working to diversify its economy through its Vision 2030 initiative, which intends to reduce the kingdom’s reliance on hydrocarbons while also developing domestic businesses and manufacturing capabilities.
On the fiscal side, Jadwa expects oil prices to average $67 per barrel, which translates into government oil revenue of $151.46 billion (568 billion Saudi riyals) this year, up from $140 billion (528 billion riyals) in 2020.
“With no changes to government expenditure, we see the fiscal deficit totaling $17 billion (67 billion riyals) (-2.1 percent of GDP), [which is] 53 percent lower than budgeted by the Ministry of Finance,” Jadwa added.