The Saudi economy, the largest in the region, is on its way to record very strong growth level this year, following a year of remarkable performance and recovery from the repercussion of the coronavirus pandemic and the accompanying closures during 2020.
We expect that momentum to continue during 2022, which confirms the continuation of the journey of growth towards the future goals set by the Kingdom's Vision 2030.
Oil and non-oil economy
In more detail, the 7 percent growth of the Kingdom's economy is built on an annual basis, as we expect for 2022, which we referred to in one of the latest reports issued by Jadwa Investment, "Macroeconomic Update - November 2021", and is based on the "sizably higher oil sector growth and robust levels of non-oil growth."
We expect the growth of the oil sector to be driven by the Kingdom's increased crude oil production, in line with yearly rises in global oil demand. As for the non-oil sector, the economy will move forward with the continued implementation of Vision 2030 programs.
Diversification of the base
The coming year will mark a critical stage in the Kingdom's efforts towards diversifying its non-oil economic base, which will be guided by a set of recently announced commitments for five years (until 2025) under various Vision Realization Programs (VRPs).
At the same time, the Saudi economy will be supported by other large outlay in government expenditures, which, despite declining yearly, is still set to approach SAR1 trillion ($266.6 billion), as we indicated in the same report.
In addition, the Public Investment Fund (PIF) and the National Development Fund (NDF) are expected to be the engines of capital deployment and economic development in the Kingdom, as detailed in the recently unveiled National Investment Strategy (NIS).
In general, the main risks to our projections relate to the potentially disruptive nature of COVID-19 or, more specifically, to global developments related to the Omicron variant that has spread around the world over the past few weeks. That being the case, it is still too early to gauge the full impact of this variant on the Saudi economy.
Exceptional performance
In 2021, the Saudi non-oil economy recorded exceptional performance from the beginning to the third quarter. The General Authority for Statistics (GASTAT) recently issued preliminary estimates on the Kingdom's GDP, indicating a 6.2 percent growth of "non-oil activities" in the third quarter of 2021, year on year.
Meanwhile, the oil sector rebounded significantly in the third quarter (39 percent, YoY), in line with the higher oil production and the significant increases in refinery output.
We have revised our GDP estimates for 2021 as a whole to 2.7 percent, compared to our previous assessment of 1.8 percent, given the improved performance in both the oil and non-oil sectors and expectations of continued growth during the fourth quarter of this year.
More specifically, because of the exceptional performance of the non-oil economy during the first three quarters of 2021, combined with the expectations of continued growth during the final quarter of this year, we have revised our non-oil private sector GDP forecast to 5.7 percent for 2021 as a whole, versus 4.4 percent in our previous estimates.
A future vision
Looking at 2022, we estimate that the Saudi economy will grow by 7 percent due to higher oil sector growth and robust levels of non-oil growth, which we expect to reach 3.2 percent.
As for local prices, despite the rise in inflation in many parts of the world, we found that the prices in the Kingdom have not been severely affected so far, with slight monthly increases year-to-date.
More specifically, food prices have not seen any significant increases in recent months (as they increased by an average of 0.16 percent, month on month in the year-to-November), although a large portion of food products are imported.
In addition, we see that the price hikes in the "transportation" category at the beginning of the year stabilized following the Royal Directive to cap gasoline prices since June.
Considering all the above developments, we have revised our 2021 inflation forecast to 3.2 percent (compared to our previous estimate of 3.7 percent).
We expect inflation to reach 1.7 percent in 2022, as the full-year effects of higher VAT are fully exhausted.
However, we expect the inflation rate to be affected by the price recovery due to the higher demand in the "hotels and restaurants," "recreation and culture," and "education" categories, in light of the lifting of more pandemic-related restrictions.
Moving forward
The economy is expected to move forward during 2022, thanks to the continued implementation of Vision 2030.
The new year will mark a critical stage in the Kingdom's efforts towards diversifying its non-oil economy, which will be guided by recently revealed five-year commitments (until 2025) under various Vision Realization Programs (VRPs).
Accordingly, under the PIF program, we expect the construction sector to grow due to progress in megaprojects and through the Fund's focus on supporting national development by injecting capital of SAR150 billion during the year and beyond.
Finance and sectors
Backed by the Financial Sector Development Program, growth of the finance sector will be supported by the continued growth in credit and the result of more initial public offerings expected in the main and parallel markets.
In the meantime, the Quality of Life Program VRP will help support growth in the wholesale and retail trade sectors.
Furthermore, non-oil manufacturing and mining growth will benefit through a reconfigured five-year delivery plan under the National Industrial Development and Logistics Program (NIDLP).
At the same time, the implementation of high-priority programs under the national transport and logistics strategy will positively affect the transport and communications sector.
*Director of the Economic Research Department at Jadwa Investment, Saudi Arabia
