The pace of growth in Saudi Arabia’s non-oil economy remained flat last month, but levels of private sector activity remain close to the low at the start of the year.
The Saudi Purchasing Managers’ Index, a survey of business managers produced for Emirates NBD bank by the data company Markit, indicated a score of 54.5 in March, up 0.1 against February’s score of 54.4. That marks a slight recovery from January’s 53.9, the lowest score recorded in the series’ history. Any score above 50.0 indicates that the economy is expanding.
“Output and order growth remain robust, which is encouraging, although this is likely underpinned by still high oil production feeding through to the related manufacturing industries,” said Khatija Haque, head of Middle East and North Africa research at Emirates NBD.
“Nevertheless, we expect GDP growth in the kingdom to slow to 1.9 per cent this year from 3.4 per cent in 2015.”
Prince Mohammed bin Salman, the kingdom’s deputy crown prince, trailed a programme of revenue-raising reforms in an interview with Bloomberg last week.
The kingdom plans to place state assets including Saudi Aramco and Sabic under the control of the Public Investment Fund, which will manage up to US$2 trillion in assets, Prince Mohammed said.
That is in addition to $100 billion of new revenues earned from new taxes, levies and subsidy cuts.
The lower oil price has led Saudi Arabia to cut public spending in a bid to bring its finances back into balance and slow the pace of asset depletion. Sama Foreign Holdings, which manages the kingdom’s foreign exchange reserves, spent $115 billion of its reserves last year to finance its fiscal deficit of 15 per cent of GDP. Economists believe that additional public spending cuts will further slow growth in Saudi Arabia, where most economic activity depends on government spending.
Jason Tuvey, emerging markets economist at Capital Economics, wrote in a research note: “The modest improvement in the PMIs last month [doesn’t] change the bigger picture. With oil prices still languishing at around $40 per barrel, fiscal consolidation will have to continue apace.
“As the impact of this feeds through into the wider economy, growth in the Gulf’s non-oil sectors is likely to slow sharply this year.”
abouyamourn@thenational.ae
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