Riyad Capital expects Saudi economy to grow by 3% this year

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Riyad Capital forecast Saudi Arabia’s economy to grow by 3% in 2023, driven by the expected strong growth of the non-oil economy.

Oil sector GDP growth is expected to be 1.2% this year, the brokerage firm said in a report, adding that oil production is expected to broadly consolidate after the strong gains last year with an average output of 10.7 million barrels per day (mbd) after 10.6 mbd in 2022.

“We expect continued solid growth for the non-oil economy, fostered by a growth-oriented fiscal policy with a focus on increased investment spending, which will spur growth in 2023. For the full year, we have upgraded our forecast for non-oil activities GDP to 5%,” Riyad Capital said.

For global oil prices, some weakness in the first half of 2023 is foreseen on the back of a cooling global economy, but with a distinct recovery in the second half. Brent prices are expected to end 2023 above $100 and forecast a yearly average Brent price of $92.

With a view on these still high oil prices, the firm expects Saudi fiscal revenues to remain strong in 2023. This will allow fiscal spending to be focused on economic growth and generate a substantial surplus in the current account balance, albeit moderately lower than in 2022 (13.2% of GDP after 15.8% in 2022).

Riyad Capital also added that CPI inflation is expected to gradually ease during 2023. For the full year, an average rate of 3.1% is anticipated after 3.4% in January 2023.

Meanwhile, the US Federal Reserve is forecast to hike rates up to a peak at 5.25% during H1 2023 and to keep rates on hold throughout the second half of 2023. SAMA will follow with its policy rates  accordingly, the report noted.