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Abu Dhabi, UAETuesday 19 June 2018

Analysts predict increased growth in Saudi Arabia's economy this year

The kingdom's shift towards a more expansionary fiscal policy and higher oil prices will help drive growth

BMI research forecasts 1.6 per cent Saudi GDP growth this year. Waseem Obaidi / The National
BMI research forecasts 1.6 per cent Saudi GDP growth this year. Waseem Obaidi / The National

The Saudi Arabian economy is poised to grow by 1.6 per cent this year amid a rebound in oil prices and an easing of fiscal austerity, according to BMI Research.

Private sector activity however will regain traction at a slower pace as the introduction of VAT weighs on business confidence in the first half of the year.

“The Saudi economy will recover in 2018, as continued gains in oil prices support the government’s move towards a more expansionary fiscal policy in turn boosting consumption in the kingdom,” BMI Research said in a report.

“Beyond the short-term headwinds posed by the introduction of VAT, business activity will also strengthen.”

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The research firm, a unit of Fitch Group, noted that government’s shift towards a more expansionary fiscal policy will be a key driver of growth over the coming quarters, boosting both government and private consumption.

BMI is not the only one of late to notice the growth prospects for Saudi Arabia and joins a number of research firms, rating agencies and economists who are forecasting increased growth for the kingdom, the Arab world’s largest economy.

S&P Global Ratings affirmed Saudi Arabia's credit rating in April with a stable outlook on the expectation that economic growth will accelerate in 2018 as the world's biggest oil exporter continues to boost spending.

S&P said that its forecast of oil prices stabilising at an average of $60 per barrel from 2018 to 2021 would help the government keep its finances in order. The kingdom, Opec's biggest oil producer, is expected to produce 10 million barrels a day in 2018, in line with Opec’s 2016 decision to reduce supply. Next year, it’s expected that there will only be a gradual increase in production, S&P noted.