As per the latest January monthly economic release published by Saudi Arabian Monetary Authority (Sama), the kingdom’s economy appears to be moderately improving, amid healthy recovery in oil prices on Opec+ production cuts, a report said.
Credit to the private sector rose for the tenth straight month (+2.4 per cent y-o-y; -0.3 per cent m-o-m) in January, while bank claims to the public sector also witnessed a rise (+19.5 per cent y-o-y; +4.7 per cent m-o-m), said the report by Al Rajhi Capital, a leading financial services provider in Saudi Arabia.
Consumer spending has continued to rise on an annual basis in January as reflected by the improvement in POS transactions (+31.8 per cent y-o-y; -3.0 per cent m-o-m) and ATM withdrawals (+1.6 per cent y-o-y; -1.0 per cent m-o-m).
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The larger increase in POS sales as compared to ATM withdrawals could imply that ecommerce is picking up. Personal transfers by Saudi nationals declined for the fourth consecutive month in January (-20.6 per cent y-o-y), however, remittances by non-Saudi nationals rose (+6.1 per cent y-o-y) after falling for three months in a row.
Moreover, Sama foreign reserves declined for the first time in 10 months in January (-0.9 per cent y-o-y; -1.3 per cent m-o-m), the report said.
Despite the drop, Kingdom has sufficient reserves, which would enable it to curb fiscal deficit in 2019. In addition, the Saudi government plans to issue international Sukuk in 2H 2019 (total Sukuk issuance could be about $31 billion in 2019, as per some media reports), which could provide sufficient headroom to plug fiscal deficit further.
Meanwhile, the cost of living index entered the deflation territory in January 2019 (-1.9 per cent y-o-y; -0.3 per cent m-o-m) for the first time since 2017, as the impact of VAT has moved out for the comparable period.
The most influencing segment behind deflation is the decline in ‘Housing, Water, Electricity, Gas’ (constitutes around a quarter of the index), which could be impacted by lower housing rental prices on weak demand amid the exodus of expats.
Overall, improvement in oil prices and the government’s commitment towards lifting the non-oil sector contribution will help the Kingdom’s economy to continue expand further.
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