The Bank of America (BofA) Merrill Lynch has revised real GDP growth in Saudi Arabia for 2015 down to 1.7 per cent, from 3 per cent, forecasting a real non-hydrocarbon GDP growth of 3.0 per cent.

In comparison, real GDP growth and real non-hydrocarbon GDP growth stood at 3.6 per cent and 5.1 per cent in 2014, said the EMEA Economic Weekly, released by BofA Merrill Lynch.

“The revision to our forecasts is driven mainly by our assumption that fiscal policy is likely to turn more prudent. We assume a short-term fiscal multiplier of 0.2-0.3 for real government expenditures to real non-oil GDP,” the report said.

“At $50 per barrel, keeping expenditures flat in nominal terms versus 2014 would bring the pro-forma Saudi fiscal deficit to about20 per cent of GDP. We instead think that government nominal spending is likely to contract by 13 per cent year-on year (yoy) in 2015, bringing the fiscal deficit to 15 per cent of GDP.

“This should allow the fiscal breakeven oil price to ease back towards $85 per barrel, in our view. We assume that current spending will be broadly unchanged in real terms and have pencilled in capex spending equal to the budgetary target. Realized capex could be down 50 per cent from the 2014 likely outturn,” the report said.

“The emphasis in the budget statement on funding of projects already ongoing suggests new projects could be delayed, in our view. We expect normalization in the pace of Saudi government employment growth.”

As for UAE and Qatar, the lower fiscal breakeven oil prices imply fiscal restraint would need to be less pronounced.

“We anticipate budget deficits of 2-5 per cent of GDP, funded entirely from savings. We mark down UAE and Qatar real GDP growth by 0.5-1 percentage point (ppt) to 2.3 per cent and 4.5 per cent respectively on account of softer non-oil activity.

“Tightening regional liquidity would make Dubai refinancings more challenging. In Egypt, GCC support may be less forthcoming at current oil prices. It could also imply lower hydrocarbon sector FDI and investment, despite repayment of IOC arrears, widening the external funding gap.

“This increases the importance of the March Economic Summit, and we see room for disappointment given the build-up in expectations. The GCC could extend fuel grants or loans to minimize current account drains and help muddle through but an IMF deal may come back as a policy option. All in, keeping EGP stable in 2015 is likely to prove challenging,” BofA Merrill Lynch said in the report. – TradeArabia News Service