Saudi Arabia: Oil to drive cyclical recovery

• Q2 data shows a gradual recovery in economic growth in Saudi Arabia following a recession last year.  The rise in oil production seen at the end of Q2 is likely to be sustained through the rest of the year, underpinning growth in the oil sectors of the economy, as well as having a positive knock-on impact on manufacturing and transport & logistics. 

• The PMI surveys and official GDP data also show non-oil sector activity recovering, supported by increased government spending.  Private sector credit is showing signs of growth although liquidity conditions remain relatively tight, with government borrowing crowding out the private sector to some extent.

• Fiscal and external balances have improved dramatically from a year ago, but this is largely reflecting higher oil prices and increased oil production, rather than a structural change in the underlying dynamics of the budget or balance of payments. 

• While significant progress has been made on fiscal and social reforms over the last two years, progress on more structural economic reforms, including privatisation and economic diversification efforts, have slowed this year. As a result, inward FDI has remained weak, and unemployment among Saudis has increased.   

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