Saudi non-oil economy on solid growth trajectory: Report

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The Saudi non-oil economy is on track for a solid growth trajectory for 2019, according to a new report from investment firm Riyad Capital.

Riyad Capital based its positive outlook for growth on a variety of factors, including positive signs in the Saudi real estate sector and large investment inflows from the Kingdom’s introduction to the MSCI Emerging Markets Index this year.

The report highlighted continued non-oil GDP growth, as real and nominal GDP of the non-oil private sector expanded at similar growth rates in Q1 2019 - 2.3 and 2.1 percent year-on-year respectively.

The report also pointed to likely spending increases having a positive impact on the domestic economy.

Saudi Arabia has reported that fiscal revenue has been in line with budget targets for the first half of the year, whilst fiscal spending has failed to hit its budget and is still around 7.5 percent behind its target. Riyad Capital expects strong spending increases will alter this dynamic in H2 2019, benefitting the domestic economy.

Riyad Capital also predicted that a turnaround may be on the horizon for the Saudi real estate market, which has been in protracted decline – residential and commercial prices have fallen 17 and 25 percent since 2015 respectively. The report notes that this trend might be coming to an end, with the sector showing signs of recovery.

Transaction activity has also picked up since the beginning of 2019, with real estate transaction volumes increasing by 22 percent year-on-year in H1 2019 according to Saudi figures.

Following the US Federal Reserve base interest rate cut earlier this year, the Saudi central bank cut its interest rate by 25 basis points to 2.25 percent. The Saudi riyal yield curve has also inverted recently, in anticipation of further rate cuts.

Last week, the Kingdom completed its inclusion in the MSCI emerging markets index, bringing the weight of Saudi equities in the index to 2.8 percent.

This inclusion has helped the country’s equity market perform well so far in 2019, Riyad Capital said. The Saudi Arabian benchmark index, the Tadawul All Share Index, is up 2.26 percent since the start of 2019.

Riyad Capital added that it expects the non-oil economy to gain further pace throughout the rest of the year and into 2020. The firm forecasts a real growth of the private non-oil sector to accelerate to 2.4 percent in 2019, from 1.9 percent in 2018, and 2.7 percent in 2020.

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