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The local economy is set for a recovery in the second half of the year, with GDP growth expected to turn positive despite the economy contracting for four consecutive quarters, according to Riyad Capital’s forecasts(pdf). The firm sees GDP bouncing back to growing at a 1.5% clip this year, before accelerating to 5.6% in 2025.
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What gives? The expected improvement is largely due to a resurgence in the oil sector after previous output cuts. Saudi crude oil production is expected to increase to 10 mn bbl / d by 4Q 2025, starting next quarter. This is up from the current 8.9 mn bbl / d. “We forecast the average Brent oil price to fall in a range between US 80 and USD 90 in 2024 and 2025,” Riyad Capital said in the report.
Also helping things along: The rebounding oil sector comes in addition to strong growth in the non-oil sector, which is expected to grow 4.6% y-o-y this year and 5.2% in 2025, up from a 4.4% expansion last year.
Riyad Capital’s projections are on par with other outfits: Research firm CreditSights expects the Saudi economy to recover in 2H 2024, with GDP forecasted to grow 1.7% this year and 4.7% in 2025. The IMF also sees the economy growing at 1.7% this year. Meanwhile, a Reuters poll in July revised down earlier growth projections for the year to 1.3% on extended oil production cuts.
Penciling in lower interest rates: “Sama is projected to cut its official repo rate and reverse repo rate by an overall 175 bps until the end of 2025,” Riyad Capital said, provided the US Federal Reserve makes three rate cuts this year, and four more cuts in the next. Riyad Capital is also expecting the Saudi Central Bank to push down its 3M Saudi Arabian Interbank Offered Rate (Saibor) to 5.4% by the end of the year, and 4.35% by the end of 2025, down from the current 6.0%. This is especially if the Fed starts to cut rates at its next Federal Open Market Committee meeting, which will wrap up on Wednesday, 18 September.
On the fiscal front: The fiscal deficit is expected to come in at 1.9% of GDP this year, and narrow to 1.8% in 2025.
