Macro-economic conditions are improving in Saudi Arabia with gradual increase in spending in the local market, especially in the retail, transport, health and food & beverages segments, a report said.

POS transactions continued its uptrend, advancing 71.7% year-on-year (y-o-y) in May 2021, primarily driven by increase in ‘Restaurants & Hotels’ (+201.3% y-o-y), ‘Clothing & Footwear’ (+94.4% y-o-y), ‘Transportations’ (+82.0% y-o-y) and ‘Health’ (+46.7% y-o-y) segments, said the report released by Al Rajhi Capital, a leading financial services provider in the kingdom.

Credit to the private sector increased 16.7% y-o-y in May 2021, while bank claims on the public sector increased 10.6% y-o-y and the deposits grew by 7.5% y-o-y in May 2021. This helped money supply M3 to expand 6.7% y-o-y in May 2021, supported by M1 (+6.6% y-o-y) and M2 (+4.9% y-o-y).

Further, the banking sector's net profit before zakat and tax rose (+57.0% y-o-y) to SR4.545 billion ($1.21 billion) in May 2021 as compared to the increase of 31.8% y-o-y in April 2021. Moreover, growth in mortgage continued with 13.3% y-o-y rise in May 2021, driven by House and Apartment mortgages, which grew 14% y-o-y and 7% y-o-y, respectively; while LDR came in at 78.4% in May 2021. Meanwhile, Saudi Central Bank’s foreign reserves fell 2.7% y-o-y in May 2021 (-1.8% y-o-y in April 2021).
 
Further, Q1 2021 labour data indicated that the total unemployment rate of total working age populations (Saudis and non-Saudis 15 years and above) decreased to 6.5% in Q1 2021, compared to 7.4% in Q4 2020.

Moreover, the unemployment rate of total Saudis decreased to 11.7% in Q1 2021 as compared to 12.6% in Q4 2020. Saudis’ total unemployment rate is 0.1 pp lower than in the same period of the previous year, below its pre-Covid level.
 
Q1 2021 GDP: Saudi Arabia’s GDP fell 3.0% y-o-y in Q1 2021 as compared to a fall of 3.9% y-o-y in Q4 2020, indicating a recovery of the Kingdom from the pandemic. Further, the economy is expected to do better this year, as oil production improved gradually from 7.53 million barrels per day (mmbpd) in June 2020 to 8.46 mmbpd in May 2021 amid a recovery in oil prices.

The oil sector’s GDP contracted by 11.7% y-o-y; while the non-oil sector recorded a positive growth 2.9% y-o-y, as the hospitality, retail, and entertainment sectors are mostly back to normal operations. The majority of economic activities witnessed positive growth rates in Q1 2021, led by manufacturing with 11.8% y-o-y.
 
Brent prices averaged $68 per barrel (/bbl) in Q2 2021 and are likely to remain mostly firm for the remaining period of 2021,the report said.

Assuming $65/bbl average oil price for 2021, and 9mmbpd oil production, we now expect the government to generate oil revenues of SR527 billion, a notable upward revision from our previous expectation of SR449 billion for 2021. Further, the budget deficit may go down SR62 billion on Brent price $65/barrel, according to the report.
 
Further, Moody's Investors Services maintained Saudi Arabia's credit rating at ‘A1’, with a negative outlook, citing the impacts of Covid-19 pandemic. Moody's expects Saudi real GDP growth to reach 1.6% in 2021 and 5% 2022. The agency lowered its forecast for fiscal deficit from 6.2% to 4.7% of GDP in 2021.

The current account surplus was projected to hit nearly 3.4% of GDP, compared to the previous forecast of 2.9%. Moreover, debt is projected to reach 30.6% and 30.9% of GDP in 2021 and 2022, respectively.- TradeArabia News Service