The Saudi Economy in 2023: February 2023
The Saudi Economy in 2023: February 2023
The Saudi Economy in 2023: February 2023
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Fed officials have repeatedly denied any such intention, and insist
that inflation is far from beaten. Some analysts are taking these
denials at face value and warn that rates could be “higher for longer”.
Yet a majority still thinks the Fed will “blink first” and expects rates to
be cut later this year.
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February 2023
There are still plenty of risks to even this modest growth outlook. The
main one remains inflation. True, supply chains are functioning much
better than this time a year ago, and inflationary expectations remain
contained. Yet there is a minority of analysts that are worrying about
Risks to the global economic services inflation (which is still rising) and the possibility that China’s
outlook are still elevated, however. recovery could stoke another rally in global commodities’ prices. For
this minority, rates are likely to stay “higher for longer” (Box 1).
Figure 2: Global economic growth expected to fall Figure 3: European gas prices have adjusted to the
to 2.9 percent in 2023 Russia-Ukraine shock
8 350
6 300
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(percent)
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February 2023
OPEC is unlikely to fill this gap given its concern about the demand
However, the rest of OPEC Plus is outlook (see below), along with its own production capacity
likely to maintain a cautious stance constraints and the strategic oil relationship between Saudi Arabia
given the cloudy demand outlook. and Russia (Figure 5). Given this, it will fall to non-OPEC supply to
make up the difference. Here, the US Energy Information
Administration (EIA) is optimistic, projecting robust output gains from
the US, Canada, Brazil, Norway and Guyana, among others. The US
is expected to contribute roughly half of non-OPEC growth over 2023
Figure 4: Russia’s total liquids output set to Figure 5: OPEC sees oil demand growing by just
shrink 2 percent this year
Canada US
105
5 OPEC other non-OPEC
(million barrels per day)
4 100
3
95
2 1.8
1.1 1.7
90
1
0 85
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-2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4
2021 2022 2023F 2024F 18 19 19 20 20 21 21 22E 22 23F 23F
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February 2023
The demand outlook is, if anything, more uncertain than the supply
picture. In broad terms, there are two opposing forces. One is the
likelihood of a US recession, while the second is the Chinese re-
opening. China’s recovery is likely to be based around consumer
spending on services, rather than a boom in industrial output or
infrastructure spending. Thus, the boost to energy demand might be
less than many analysts are expecting. That said, there will be a
potent tailwind if Chinese consumers release pent-up demand for
foreign holidays, something that would stoke demand for aviation
fuel. China’s property market is also being revived, thanks to the
easing of regulatory restrictions, though confidence in this
beleaguered sector is likely to remain fragile. Overall, however, there
is little doubt that China’s energy demand is likely to record a
substantial annual gain.
Risks are skewed to the downside, There are plenty of risks to this forecast. The most obvious one is
however. the length and severity of any US recession: if inflation remains
stubbornly high then the Federal Reserve may well resist calls to cut
rates, potentially prolonging any downturn and denting oil demand
by far more than is currently anticipated. On the supply side, Russia
might decide to tolerate much deeper discounts in a bid to get more
of its oil to market (a move that could have a dual downward impact
on prices). Finally, OPEC could yet loosen its production
commitments if it feels that there is enough demand to absorb the
additional output.
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February 2023
Figure 6: Saudi Arabia led the way in global GDP Figure 7: Notable rises in female participation rate
growth last year (estimates) in recent years
30
4 50
(percent)
(percent)
2 25
0 45
20
-2
-4 40
15
Russia
South Africa
Saudi Arabia
Turkey
France
India
Indonesia
Germany
Japan
EU
Mexico
Spain
UK
Brazil
Italy
US
Australia
Canada
China
Argentina
South Korea
10 35
Q3 Q3 Q3 Q3 Q3 Q3
2017 2018 2019 2020 2021 2022
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February 2023
These fundamentals will remain These drivers should remain intact in 2023 and beyond. The main
intact in 2023… difference with 2022 will be on the hydrocarbons side, where OPEC-
Plus caution indicates that Saudi oil production will decline very
slightly this year (see below) enough to see overall hydrocarbons
GDP edge down by 0.2 percent.
As for the non-oil sector, China’s reopening will stoke demand for
...and there should be a helpful Saudi petrochemicals, while progress on a range of giga- and mega-
boost to non-oil exports from projects will underpin growth in the Construction and Transport
China’s re-opening. sectors. Inflation should remain contained (see below) allowing
further brisk expansion in Wholesale & Retail Trade, helped also by
additional government support for low-income households. Real
Estate activity is likely to remain subdued but should see a revival
late in the year and into 2024 if, as we expect, interest rates begin to
come down.
However, overall GDP growth will Overall, we see total GDP growth easing to 2.8 percent in 2023 as oil
be dragged lower by slightly production flattens. Non-oil GDP is a more useful barometer of the
weaker oil production. Kingdom’s economic situation, and this is expected to expand by 5.5
percent, a slight uptick on last year’s estimate.
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February 2023
price crash —still fresh in the memory, we think that OPEC Plus will
stick with its November 2022 production agreement. Thus, we see
the Kingdom’s average annual production easing slightly to around
Gas production is set to increase, 10.5 mbpd in 2023.
as is refining, both of which will
respond to firm domestic demand. Gas production should add a bit to hydrocarbons GDP. Total Saudi
gas production grew by some 4 percent in 2021 to reach 117 billion
cubic meters, putting it third in the region behind Iran and Qatar, and
production is likely to have accelerated in 2022. Currently, gas is still
a minor element of overall hydrocarbons GDP, but we see it gaining
in importance in the years ahead. Natural gas is a key ingredient of
the Vision 2030 program, and also has an increasingly important—if
However, these gains will not
temporary—role in the global energy transition. Aramco is committed
offset the cuts to crude output and
overall hydrocarbons GDP is set to to expanding its gas processing facilities, particularly of non-
contract by around 0.2 percent. associated sources of gas, where production is not constrained by
OPEC Plus agreements. The Kingdom’s proximity to Europe, where
gas demand is set to remain robust, also offers significant export
potential.
Also, full year consumer spending (POS, e-commerce & ATM cash
withdrawals) rose 9.5 percent year-on-year to a total of SR1.2 trillion,
higher by 19 percent than pre-pandemic levels. When looking at the
sectorial breakdown of spending (via POS only) on ‘hotels’ and
’restaurants and coffee shops’ rose by 35 percent and 26 percent
year-on-year, respectively, ranking amongst the top sectors in yearly
rises (Figure 9). At the same time, spending on ‘jewelry’, ’furniture’
Figure 8: Spending on ’hotels’ saw impressive Figure 9: POS spending in 2022, by sector
growth in 2022* (year-on-year change)
40
14
30
12
(Percent)
20
(SR Billion)
10
10
8
0
6
-10
4
Misc. goods
Health
Restaurants
Clothings
Recreation
Bldg material
Furniture
Jewelry
Public utlities
Education
Others
Telecom
Electronics
Transport
2
0
2019 2020 2021 2022
*POS spending
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February 2023
The sector will benefit from further Looking ahead, we expect to see continued growth in this sector,
growth in visitor numbers as more with a number of high-end hotels due to be launched around the
and more hotels are added. Kingdom, including the ones affiliated with the PIF’s giga-projects in
the Red Sea and Diriyah. In addition, the yearly growth in the
number of tourism visitors and pilgrims should add support to this
sector, with the number of Hajj pilgrims expected to go back to pre-
pandemic levels, or even higher (Figure 10). In addition, a number of
sports and entertainment events taking place across the Kingdom
should add a helpful tailwind to the hospitality sector.
Non-oil manufacturing (19.8 percent of non-oil GDP) has
performed strongly, rising by 9.1 percent in the year-to-Q3 2022. The
Non-oil manufacturing has been robust activity is, in part, associated with a notable increase in the
robust, and petrochemicals should value of the Kingdom’s non-oil exports, rising by 13 percent in 2022
get a further boost from the revival year-on-year, despite a slight decline in Q4 (Figure 11). Moreover, a
of Chinese demand. significant improvement in the manufacturing sector has been seen
through the Index of Industrial Production (IIP), which rose by an
average of 22 percent in 2022. Also, growth is likely to have been
enhanced by more than 1,000 new industrial factories starting
production in 2022 (worth SR29 billion of investments), creating
some 44,000 new jobs over the same period.
Figure 10: Annual Hajj numbers are set to have a Figure 11: Annual non-oil exports hit a record
significant rebound this year high in 2022
3.5 90
3.0 80
70
2.5
(million pilgrims)
60
($ billion)
2.0 50
1.5 40
1.0 30
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0.5
10
0.0
0
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February 2023
Growth in the “Transport” sector The Transport, Storage & Communication sector (12.3 percent of
was also propelled by the strong non-oil GDP) saw a significant gain in the year to Q3 2022, growing
rebound in tourism... by 7.6 percent over the same period in 2021. Growth in the sector
was substantially supported by the rebound in travel, with a
progressive lifting of restrictions for Umrah pilgrims during the course
of the year encouraging the return of more than 7 million visitors by
the end of 2022, and a higher yearly number of Hajj permits (at one
million, compared with 60,000 in 2021). In addition, the sector
...while the Communications witnessed a notable rise in other segments, such as railways, with
subsector benefitted from further Saudi Arabia Railways (SAR) carrying more than 5.8 million
e-commerce penetration. passengers during 2022, more than double the 2021 figure
(including 1.35 million pilgrims through Jeddah, Makkah and
Madinah). Cargo transportation also saw a healthy 22 percent gain,
with Saudi ports witnessing a 13 percent rise in volumes handled in
2022. Added to this, the year saw the launch of five public bus
transport projects in 11 cities and regions around the Kingdom.
Figure 12: The National Industrial Strategy’s main Figure 13: Expansion in ‘transport’ is reflected in
focus sectors the rise in the sector’s* employment
Construction 300
Cars Petrochemicals
material
200
Medical 100
Aviation Food industries
appliances
0
Q3 2019
Q4 2020
Q1 2022
Q4 2019
Q1 2020
Q2 2020
Q3 2020
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q2 2022
Q3 2022
Communications will benefit from launching 12 logistic platforms and increasing railway freight
a further expansion in fiber-optic capacity. Meanwhile, the communications sub-sector will be
connectivity. supported by an acceleration in the rollout of optical fiber for
residential areas, with plans to raise coverage from 61 to 64 percent
in 2023. Finally, the Kingdom plans a significant rise in Umrah and
Hajj pilgrims, with numbers expected to reach 2 million for Hajj
pilgrims, with 1.8 million of them coming from outside the Kingdom.
In general, we expect robust growth for the sector in 2023 and
beyond, as more travel and transport activities are rolled out, and
more programs and projects are introduced under the National
Transport and Logistics Strategy, announced in June 2021.
“Real Estate” saw a
slowdown last year as higher Real Estate Activities (11.6 percent of non-oil GDP) grew at a
interest rates weighed on modest 1.4 percent pace in the year to Q3 2022, a significant
mortgage demand. slowdown from the 5.6 percent recorded in the same period of 2021.
Growth continued in various housing projects under the Ministry of
Housing’s (MoH) Sakani program, but new residential mortgages
provided by banks and finance companies declined by 21 percent
year-on-year in 2022, with the latest SAMA data showing that new
mortgage lending totaled SR123 billion last year, down from SR156
billion in 2021 (Figure 14).
Figure 14: New mortgage loans were down in Figure 15: Employment in the construction sector
2022 by 21 percent year-on-year saw a significant rebound in 2022
Mortgage amount, RHS 2.5
Year on year growth
200 180 2.4
160 2.3
150 140 2.2
(SR billion)
(million)
120
(percent)
100 2.1
100
2.0
80
50 1.9
60
0 40 1.8
Q3 2019
Q4 2021
Q2 2022
Q4 2019
Q1 2020
Q2 2020
Q3 2020
Q4 2020
Q1 2021
Q2 2021
Q3 2021
Q1 2022
Q3 2022
20
-50 0
2017 2018 2019 2020 2021 2022
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February 2023
For 2023 and beyond, growth in this sector will be mainly supported
Projects in a range of other by the progress in PIF’s giga-projects: Neom, Red Sea, Roshn,
sectors will also lend support this Qidiya and Diriyah, all of which saw varying rates of progress during
year. 2022. Moreover, the sector will continue to benefit from the rise in
government capital expenditure, up to SR157 billion in 2023 from
SR150 billion in 2022. As highlighted in the recent budget statement,
the annual rise in capex stems from the government’s plan to move
forward with spending on mega-projects, growing sectors such as
tourism, manufacturing and mining, and other infrastructure projects
around the Kingdom.
Agriculture enjoyed a relatively Agriculture (6.1 percent of non-oil GDP) rose by 3.2 percent in the
strong 2022. year-to-Q3 2022, year-on-year. During 2022, the sector successfully
dealt with the Ukraine-Russia conflict by devoting SR9.5 billion to
deal with food supply shortages and global inflation. Also, the
Ministry of Environment, Agriculture and Water (MEWA) approved
The Ukraine-Russia conflict has more than SR1 billion for small agriculture enterprises throughout the
underscored the need to reduce year.
vulnerability to global food price
volatility. Looking ahead, MEWA’s efforts to secure self-sufficiency in various
foods will be supplemented by additional funding from the
Agricultural Development Fund (ADF) which has set aside circa 6.5
billion for various projects in 2023, up 3 percent on last year (Figure
16).
Figure 16: ADF’s loans by sector, up to 2021 Figure 17: TASI’s main market saw strong mo-
mentum in IPOs during 2022
Intl. Agr.
1% Investments 40,000 20
IPO
Red Meats 35,000 Number of offerings (RHS)
(number of offerings)
5%
(SR million)
“Community & Social Services” Community, Social & Personal Services (6.3 percent of non-oil
enjoyed a decent year and should GDP) rose by 3.3 percent in the year-to-Q3 2022, year-on-year,
continue to benefit from the growth including a sharp 7.6 percent rise in Q3. This sector includes various
of entertainment offerings. activities such as education, healthcare, arts, entertainment, and
sports, which will have benefitted from a rebound in activity
compared with the last two years during Covid-19 restrictions.
Figure 18: Growth in bank lending to the private Figure 19: Mining licenses rose by an average of
sector softened slightly last year 60 new licenses per month in 2022
Bank credit to private sector 120
2400 year-on-year change, RHS 20 100
18
2200 16 80
(Licenses)
14
(SR billion)
2000 60
(percent)
12
1800 10 40
8
1600 20
6
1400 4 0
2
Mar-22
May-22
Apr-22
Jul-22
Feb-22
Oct-22
Aug-22
Sep-22
Nov-22
Dec-22
Jan-22
Jun-22
1200 0
Dec-18 Dec-19 Dec-20 Dec-21 Dec-22
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February 2023
Fiscal Policy
The 2023 budget was drawn up during a period of heightened
volatility in global financial and oil markets (H2 2022) and there is
Projections in the 2023 budget are understandable caution in its projections. The budget forecasts total
understandably cautious. A revenue to reach SR1.13 trillion, an 8 percent increase on the 2022
conservative oil price appears to budget but an 8.4 percent decline on 2022’s estimated level. Much
have been assumed. hinges on oil price and production assumptions, which are naturally
not revealed by the authorities. We think that a figure in the range of
$70/b-$75/b (Brent) guided their revenue assumptions, though the
budget was likely finalized before the latest OPEC Plus agreement
which reins in oil production. By contrast, non-oil revenue is
projected to increase, with VAT takings expected to climb by 4
percent, which still seems a bit pessimistic especially when adjusted
for inflation.
Total spending is budgeted to fall Total budgeted expenditure for 2023 is SR1.11 trillion. This puts it
compared with the 2022 estimate. 16.6 percent above the 2022 budget, but some 1.6 percent below
However, capex is scheduled to the official estimate of spending in 2022. Yet medium-term spending
increase. plans have been raised significantly compared with those set out in
the 2022 budget: total spending in 2024 is now projected at SR1.13
trillion compared with SR951 billion in the 2022 budget. Despite this
uplift, spending is still expected to narrow as a share of non-oil GDP-
to around 41 percent in 2025 compared with 48 percent in 2022.
Figure 20: We see government spending growth Figure 21: The budgetary and debt outlook is
of around 1 percent in 2023 comfortable
(percent of GDP)
0 25
-2
-4 20
1,000 -6
-8 15
-10
900 -12 10
-14 5
-16
800 -18 0
2014 2016 2018 2020 2022E 2024F 2014 2016 2018 2020 2022E 2024F
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February 2023
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February 2023
The net result of all this is a budget On balance, we think spending on goods and services is set to rise
surplus forecast that is slightly high- again, but only modestly, with the impact of strong domestic demand
er than that of the authorities (0.9 being softened by weaker global commodities’ prices. Capex is likely
percent of GDP). to increase but will remain slightly below the medium-term average.
Thus, we see total spending growth contained to just 1 percent
(Figure 20), which should allow a budget surplus of some 0.9
percent of GDP (Figure 21).
Figure 22: Borrowing activities Figure 23: Cost of funding increased but by less
than global rates
(percentage point)
150 1.5
1.0
100 0.5
0.0
50 -0.5
-1.0
0 -1.5
2015 2016 2017 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022
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February 2023
Figure 24: Categories of bank deposits as a share Figure 25: New bank loans in 2022, by sector
of total deposits
Demand deposits Time & Saving deposits 50
40
70
(SR billion)
30
(percent of total)
20
60
10
0
50 -10
Real Estate
Tech. activities
Finance
Construction
Mining
Utlities
Manufacturing
Accomm. & Food
IT & Comm.
Education
Agriculture
Transport
40
30
20
Dec-12 Dec-14 Dec-16 Dec-18 Dec-20 Dec-22
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February 2023
Looking ahead, we expect the Fed to halt its tightening cycle in the
next few months, probably with only two further 25 basis point rises
Saudi interest rates should begin
in its key rate. Thus, Saudi borrowing costs should begin to level off
to level off in the next few months,
(albeit at a much higher level than a year ago). In any event, the
albeit at a much higher level than a
demand for credit is likely to remain robust, with strong calls from
year ago…
both project-related activities and consumer demand. The latter is
responding to ever-expanding spending opportunities, particularly
with regard to services, along with the ongoing labor force
expansion. We note that credit card loans gathered pace again in the
...yet demand for credit from
second half of 2022 despite the higher interest rate environment
consumers and investors is likely
to remain strong. (Figure 26). Mortgage demand could also pick up again if, as seems
likely, interest rates begin to fall towards the end of the year.
Saudi Arabia bucked the trend of sharp rises in global inflation with
Figure 26: Credit card loans rose in 2022 despite Figure 27: Inflation average in 2022, by sector
higher interest rates (year-on-year)
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February 2023
Figure 28: Consumer price inflation is expected to Figure 29: Global shipping costs are easing rapidly
remain manageable (index)
4
5,000
3
4,000
2
(percent)
1 3,000
0
2,000
-1
1,000
-2
-3 0
2018 2019 2020 2021 2022 2023F 2024F Jan-19 Jan-20 Jan-21 Jan-22 Jan-23
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February 2023
Figure 30: Large trade surpluses are anticipated Figure 31: Financial account outflows are expected
to narrow
Current account balance
500 Exports Imports Balance Financial account balance
400 150 Change in official reserves
($ billion)
300 100
($ billion)
200 50
100 0
0 -50
-100 -100
-200 -150
2019 2020 2021 2022E 2023F 2024F 2019 2020 2021 2022E 2023F 2024F
21
February 2023
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February 2023
Key Data
Sources: Jadwa Investment forecasts for 2023 and 2024. General Authority for Statistics for GDP and demographic indicators,
Saudi Central for monetary and external trade indicators, Ministry of Finance for budgetary indicators. Note: *2016 government
expenditure includes SR105 billion in due payment from previous years.
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February 2023
Disclaimer of Liability
Unless otherwise stated, all information contained in this document (the “Publication”)
shall not be reproduced, in whole or in part, without the specific written permission of
Jadwa Investment.
The data contained in this Research is sourced from Reuters, Bloomberg, GaStat,
SAMA, IMF, FocusEconomics, New York Federal Reserve, ’Tadawul, 2022 budget,
CCHI, Vision 2030 VRPs, OPEC, EIA, IEA, IEF, and national statistical sources
unless otherwise stated.
Jadwa Investment makes its best effort to ensure that the content in the Publication is
accurate and up to date at all times. Jadwa Investment makes no warranty,
representation or undertaking whether expressed or implied, nor does it assume any
legal liability, whether direct or indirect, or responsibility for the accuracy,
completeness, or usefulness of any information that contain in the Publication. It is
not the intention of the Publication to be used or deemed as recommendation, option
or advice for any action (s) that may take place in future.
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