Economic Analysis - Barely Avoiding A Recession In 2016 - 01 AUG 2016


BMI View: Relatively elevated growth in the hydrocarbon sector will prevent the Saudi economy from entering a recession in 2016 . Nonetheless, the non-oil economy will continue to post negative growth rates over the coming quarters, as the Saudi government pushes ahead with fiscal retrenchment on the back of low oil prices.

We believe that the Saudi economy will escape entering a recession in 2016 only due to relatively elevated growth in the hydrocarbon sector. The non-oil economy will continue to post negative growth rates over the coming quarters, with ongoing fiscal retrenchment impacting companies' earnings, business and consumer confidence, and liquidity. Saudi Arabia's economic performance has been dependent on the hydrocarbon sector for more than half a century. Oil production accounts for close to 40% of GDP, and the non-oil economy relies on government spending funded by large oil revenues.

In 2016, we forecast real growth in the hydrocarbon sector to reach 2.6% in Saudi Arabia, as the government pushes ahead with its strategy to protect market share over prices. In Q116, hydrocarbon production growth came in at 5%. Saudi production capacity increased by 250,000 barrels a day in May 2016, following the completion of the expansion of the Shaybah oilfield. The projected 2.6% real increase in hydrocarbon output will enable Saudi real GDP growth to remain positive in 2016.

Hydrocarbon Output Growth Keeping The Vessel Afloat
Saudi Arabia - Real GDP Growth, Hydrocarbon Growth And Brent Prices
f = BMI forecast. Source: National Sources, BMI

This article is part of our Emerging Markets Monitor coverage. To access this article subscribe now or sign up for free trial