Saudi Economy Expected to Rebound, says Riyad Capital

After a year of growth consolidation in 2023, the Saudi economy is expected to rebound in 2024 and 2025, Riyad Capital, a Saudi listed firm with a paid-up capital of $133.31 million, said.

In its latest report entitled “Saudi Economic Chart Book” for the second quarter of 2024, Riyad Capital, the investment arm of Riyad Bank, projected continued solid growth for non-oil activities, fostered by a growth-oriented fiscal policy with a focus on increased investment spending which will spur growth in the coming years. After a growth rate of 4.4% in 2023, we forecast non-oil activities to grow by 4.8% in 2024 and by 5.2% in 2025.

“We expect oil production to expand again above 10 million barrels per day (MBD) in the course of the next 18 months with the better part of this increase taking place in 2025. Therefore, the oil sector GDP contribution will still be mildly negative in 2024 with –2.2%, but record substantial growth of 8.7% in 2025,” Riyad Capital said in the report.

As a consequence, the firm forecasts the overall economy to expand by 2.3% in 2024 and to accelerate to 5.8% in 2025.

Volatile Oil Prices

According to Riyad Capital’s baseline scenario, global oil prices are expected to remain volatile but at elevated levels. We forecast the average Brent oil price to fall in a range between $80 and $90 In 2024 and 2025.

With a view on the expected expansionary fiscal policy pursued by the government in the next two years, Riyad Capital projects the fiscal deficit to end up at 3% of GDP in 2024 and to shrink to 1.8% of GDP in 2025.

After a surplus of 3.2% of GDP in 2023, Riyad Capital expects the current account balance to rise again to 3.7% of GDP in 2024. It will further expand to 4.9% of GDP in 2025 on the back of notably higher projected oil export revenues next year.

“We expect inflation to generally remain tame. After a modest 2.3% annual average rate in 2023, inflation will further slow to 2.0% in 2024 with a moderate acceleration to 2.4% expected for 2025,” it said.

US FED Rate Cuts

Riyad Capital also expects two rate cuts by the US Federal Reserve in H2 of 2024 and another four rate cuts in the course of 2025. Accordingly, Saudi Central Bank SAMA is projected to cut its official repo rate and reverse repo rate by overall 150bp until end of 2025.

The Kingdom’s forex reserves jumped $23.46 billion in March 2024, the largest monthly increase since 2008. This was due to the Aramco dividend payment in March, which, including a performance-linked special dividend, amounted to a record high $30.93 billion.

“The Saudi government also increased the fiscal expenditure in Q1 of 2024 by 7.7% y-o-y. For the full year 2024, we expect fiscal policy to be as expansionary as in the last two years with spending growth of approx. 11%. This will foster the economic transformation and spur non-oil growth,” Riyad Capital added.

Even real estate transactions witnessed a strong recovery in Q1 of 2024 with a growth rate of 70% y-o-y. This confirms a trend which already started in the second half of 2023. Before that, the property market had witnessed a substantial decline in market activity from mid-2022 to mid-2023.

Since mid of March, the Saudi equity market is in a consolidation mode after a strong rally which had started back in October 2023. This rally was also ac-companied by sharply rising trading volumes with the average daily traded value rising from $1.23 billion to $2.45 billion between October and March, the report added.