Economic updates
Our in-depth, independent reports cover the macroeconomic environment, the Saudi government’s annual budget, and Saudi Arabia’s monetary and financial developments, labor market, and inflation.
Monetary and Financial Update: Pace of Slowdown in Monetary Aggregates to Moderate in 2016
Following a rapid slowdown of monetary aggregates towards the end of 2015, we now expect some moderation in the pace of slowdown in the Kingdom in 2016. The current series of sovereign bond issuances should reassure investors of the governments commitment to maintain a high level of spending on the economy, which will continue to be the growth driver for credit to both consumers and corporations. We expect annual growth in credit to the private sector to slow in 2016.
Recent CMA annoucements related to Tadawul
A number of major developments have taken place in the Kingdom in the last few weeks underlining the governments commitment to implementing structural economic reform. In April, we saw the unveiling of the Saudi Vision 2030 and, more recently, we saw major changes on a ministerial level. Packed in between all these announcements was an equally important but perhaps less publicized announcement by the Capital Market Authority (CMA), which will have a major impact on the Saudi Stock Exchange (Tadawul). Whilst some of these amendments focused on loosening previous rules on participation and ownership levels of qualified foreign institutional investors (QFIs), another strand of these reforms introduced new types of trading options and settlement processes, in line with international standards.
National Transformation Program (NTP) 2020: The Kingdom's Path to Sustainable Economic Development
The Council of Ministers approved the Kingdoms National Transformation Program (NTP 2020) on June 6th 2016, with it ushering in a major new policy era designed to overhaul the economy. The program branches out directly from the Vision 2030 announcement back in April, and includes major overhauls to the economy. In this report, we attempt to assess the most relevant economic initiatives specified within the NTP, and try to present the likely trends and potential impact on the economy. We have also revised some of our macroeconomic forecast for 2016 and 2017, including our oil, fiscal, external, and GDP outlook.
The Saudi Stock Exchange (Tadawul) in 2016
The Tadawul All Share Index (TASI) has dropped dramatically since mid-2015, making it one of the worst performing equity markets amongst major global and regional indices. Whilst the decline in oil prices has been an obvious factor in this fall, a number of other developments have played their part in dampening investor sentiment. In general, a deteriorating outlook over Chinese economic growth led to a reversal of portfolio equity flows from emerging markets. More specifically, the TASI suffered due to an escalation in regional political upheaval and energy price reform, whilst an overreaction by retail investors with short term investment horizons added to declines. Nevertheless, in recent weeks we have seen some tentative signs of recovery in the TASI. A mild improvement in oil prices and stability in global equity markets has afforded us an opportunity to be cautiously optimistic as we move forward.
The Saudi Economy in 2016
Macroeconomic reportThe Saudi economy will continue to slow in 2016 as the private sector gradually adjusts to the new norm of fiscal deficits and lower spending announced by the government. As oil prices fall year-on-year in 2016, the fiscal deficit will remain in double digits, but the government will push to gradually diversify its revenue base and consolidate its spending. The most recent rise in domestic energy prices represents a trend towards a broader reform in domestic economic policymaking. We expect Saudi oil production in 2016 to remain unchanged, year-on-year, at 10.2 mbpd. Saudi Arabias current strategy of maintaining market share will result in lower levels of oil revenues in the short-term, but will benefit it in a few years time. Despite the lower level of spending outlined in the 2016 Saudi budget we expect the government to continue supporting economic activity despite the prevailing subdued oil price environment.
