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The non-oil private sector in the Kingdom is expected to grow at around 1.2 percent compared to 0.1 percent in 2016, Jadwa Investment’s recent macroeconomic update showed.
“The recent issuance of an Islamic bond (sukuk), and the reinstatement of allowances for public sector workers should help lift, or at least stabilize, consumer spending and sentiment. In fact, business surveys continue to point towards an expansion in the non-oil private economy, with a noticeable improvement since the start of 2017,” the report said. Non-oil GDP will be supported by yet-to-be-realized government capital spending, it added.
According to the report, while higher year-on-year oil prices should help increase oil revenue, this is expected to be lower than previously forecasted due to the Kingdom’s strict compliance to OPEC cuts since the beginning of the year. It estimates the Kingdom’s oil revenue to equal SR499 billion in 2017.
Largely as a consequence of lower oil production, and therefore oil revenue, the report has revised its 2017 budget deficit forecast to SR182 billion (6.9 percent of GDP). The financing of the 2017 deficit will, in order of stated priority by government, be done through raising international debt, domestic debt and then drawing down of foreign exchange reserves, it further said.
Moreover, major determinant of inflation in 2017 will be electricity price hikes for households, expected to be implemented in mid-2017.
Inflation in Saudi Arabia has followed a deflationary trend since the start of the year. Jadwa Investment’s report attributes this to negative growth in the housing and utilities segment, as a result of the energy price hikes enacted last year. It forecast inflation to be at 2 percent in 2017, and added that a major determinant will be electricity price hikes for households, expected to be implemented mid-year.
A recent rise in interest rates by the US Federal Reserve saw SAMA mirroring the hike with rises in its reverse repo policy. The report noted that further Fed hikes will not significantly affect the Kingdom’s liquidity situation.
According to estimates from Thomson Reuters, Middle Eastern investment banking fees totalled an estimated $669.2 million during the first nine months of 2017, four per cent less than the value of fee
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