Saudi budget 2021 commentary: We expect a broad-based recovery next year

RIYADH: After Tuesday’s Saudi Budget announcement, Asad Khan, head of research, Jadwa Investment, believes the Kingdom will see a broad-based recovery into 2021.

“According to the budget statement, real GDP (gross domestic product) growth is expected to have declined by -3.7 percent year-on-year in 2020 compared with our forecast of -3.6 percent and compared with a 0.3 percent rise year-on-year in 2019.

“GDP in 2020 was affected by a decline in both the oil and non-oil sector. In fact, Saudi crude oil production is expected to average 9.2 million barrels per day (bpd) in 2020, compared with 9.8 million bpd during the same period last year.

“The reduction in output reflects Saudi Arabia’s commitment to the OPEC and non-OPEC (OPEC+) agreement.

“Meanwhile, as we highlighted in our recent macroeconomic update, non-oil GDP was likely to perform better than initially anticipated, with the non-oil private sector composite index showing a sharp rebound in economic activity within the Kingdom.

“Looking forward to 2021, we expect a broad-based recovery. The timeline embedded in our forecast assumes a sizeable roll-out of a vaccine by mid-year (with the Saudi Ministry of Health recently opening up free registration of the vaccine for both citizens and expats).

“We see a sequential quarter-on-quarter improvement in the Saudi economy over the remainder of the Q4 2020 and next year, with this recovery being more vigorous in the second half of 2021.

“On the oil side, despite OPEC+ recently deciding not to raise oil production by the full 1.9 million bpd immediately in 2021, we expect the alliance to gradually reach this level by the end of Q1 2021, resulting in Saudi crude oil production rising gradually over the same period.

“Overall, in 2021, the statement outlines that GDP is expected to rebound to growth of 3.2 percent (compared with our forecast of 3.4 percent).

“Meanwhile, inflation for 2020 is estimated to rise to 3.7 percent and 2.9 percent in 2021, due to the anticipated impact of the increase in VAT and customs duty on some products (versus our forecast of 3 and 3.7 percent, respectively).”