Saudi Arabia’s economy contracted by 7% year-on-year (y/y) in the second quarter (Q2) of 2020, with both oil and non-oil components down at -4.5% y/y and -8.6% y/y, respectively, a report said.
Based on an real GDP growth assumption of -3.8% in 2020 and +3.2% in 2021–signalling a shallower recession but a modest recovery–the fiscal deficit is targeted to decline from an expected $79.5 billion (12.0% of GDP) this year to $38.7 billion (5.1% of GDP) in 2021, said the Mitsubishi UFJ Financial Group (MUFG), a Japanese bank holding and financial services company, in its latest Mena Economic Weekly report.
Saudi Arabia’s pre-budget 2021 released by the Ministry of Finance (MoF) on 30 September has struck a pragmatic balance between two competing objectives –fiscal prudence in accordance to its medium-term balanced budget by its terminal date of 2023 on the one hand, and enhancing real GDP growth on the other hand.
For the projections of the MoF’s spending side of the fiscal equation to tally up with the arithmetic estimates of its economic growth targets, it is likely that the onus of project spending may fall on other government related entities and potentially the Public Investment Fund (PIF) to stimulate the economy.
It is thus on the expenditure side that warrants closer scrutiny next year as pressures to some of the acute cost rationalisation witnessed thus far in 2020in order to stimulate growth and job creation over the medium term are likely to be significant.
Meanwhile in Bahrain, economic activity showed a very sharp decline in the second quarter of the year. Real GDP contracted by 8.9% y/y despite oil sector growing in the quarter and up by 3.2% y/y.
As with economies across the world, Q2 2020 will mark the trough of the contraction, given the economy was shut-down for much of April and only partially reopened in May.
MUFG expects Q3 2020 to be the quarter of economic stabilisation and gradual recovery and Q4 2020 should witness the recovery pickup further with strengthening optimism surrounding Covid-19 vaccine probabilities. – TradeArabia News Service
Saudi Arabia records 7% economic contraction in Q2
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