Saudi consumer outlook to improve in 2018 as economy recovers

Saudi Arabia's consumer outlook will improve over 2018, driven by more favorable economic conditions, BMI Research said in a new report.

The Kingdom's economy will emerge from recession this year, boosting the outlook for the consumer market though slightly, it added.

"We do caution that growth will remain tepid, due to inflation returning following fiscal reforms and a rise in oil prices, with non-oil industry diversification not picking up significantly over the short term," the consultancy said.

Despite the reversal of some of the government's austerity measures, the report said inflation will increase this year due to the implementation of fiscal measures.

"While we expect demand-pull price pressures to return, owing to an improving macroeconomic backdrop, we believe that these will remain modest, mitigated by the Saudi Arabian Monetary Authority (SAMA)’s tightening cycle, in line with moves by the US Federal Reserve," BMI Research noted.

Meanwhile, an uptick in oil prices will add to the inflationary pressures in the country as BMI revised up its projections for Brent prices to average $65 per barrel (bbl) this year and $69/bbl in 2019, up from $57/bbl and $63/bbl previously.

Furthermore, the introduction of a value-added tax, at a rate of 5 percent, combined with energy subsidy cuts, are likely to push up prices for Saudi households, especially in H1 2018.

"Given our expectation for economic activity to remain subdued in 2018, demand-pull price pressures will stay modest over the coming quarters, with inflation largely driven by fiscal measures, forecast at an average of 3.6 percent," the report informed.