Saudi economy to grow 1.8% in 2018 on non-oil GDP expansion, NCB says

Non-oil GDP is projected to rise to 2.8 per cent this year while oil GDP is set to grow 0.5 per cent

The kingdom's economy is benefiting from increased government spending. Amr Nabil/AP

Saudi Arabia, the Arab world's largest economy, is expected to record a 1.8 per cent growth in gross domestic product thanks to expansion in the non-oil sector this year after overall economic growth contracted last year, according to estimates from National Commercial Bank, the country’s top lender by assets.

Non-oil GDP is projected to rise to 2.8 per cent this year from 1 per cent last year, while oil GDP will grow 0.5 per cent versus a 3 per cent contraction, the lender said in a report. In 2019, the economy is set to accelerate 2.7 per cent, as oil GDP expands 2 per cent and non-oil GDP increases 3.2 per cent.

“The economic overhaul coupled with oil market developments resulted in a contraction of the Saudi economy in 2017, however, 2018 will be the turning point,” said the report.

The economy of Saudi Arabia, the world’s biggest oil exporter, slowed down in the last three years due to a slump in oil prices that fell by more than half from the mid-2014 high of $115 a barrel.

As Opec's biggest producer the kingdom is also complying with global oil output curbs that have helped oil prices recover from their three-year lows. The country's adherence to the oil pact has slowed down growth of oil GDP, while austerity measures undertaken to narrow the fiscal deficit from the record reached in 2015 dampened non-oil GDP.

For this year, the government announced a record budget to help propel growth, which it forecast to reach 2.7 per cent as well as in 2019.

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“Recent announcements underscore adamancy on the part of the government to utilise the realised savings from streamlining expenses towards stimulating economic growth, which is apparent from elevated budget allocations to capital expenditures,” said the report.

The country unveiled its economic overhaul roadmap, Vision 2030, and the 2020 NTP in 2016 to help lower the kingdom’s dependency on oil by creating new revenue streams, developing the private sector, widening its manufacturing industry and opening up capital markets to foreign investors.

Saudi Arabia’s GDP is projected to rise 1.7 per cent this year and accelerate further in 2019 to 1.9 per cent as oil output increases, the International Monetary Fund said in April.