The August 2018 chart book by Jadwa Investments provides useful insights into Saudi Arabia’s economy.
Data for June showed mixed economic activity. While PoS transactions were up 6.8 percent year-on-year, ATM transactions were down 4.4 percent, reflecting slower activity during the eid al-fitr holidays. Cement sales continued to drop, with a 4 percent decline year-on-year, and 50 percent month-on-month, the largest monthly drop since June 2017. Non-oil exports increased by 26 percent year-on-year in April whilst year-to-April growth stood at 21 percent.
The net monthly change to government accounts with the Saudi Arabian Monetary Authority (SAMA) decreased by SAR15 billion ($4 billion) month-on-month in June, due to a decrease of SAR16 billion ($4.27 billion) from government current deposits during the month. At the same time, domestic banks net holdings of government debt rose by SAR2.6 billion ($693.3 million) in June, following a domestic sukuk (bond) re-opening during the month. The Ministry of Finance began selling local currency government bonds through a new ‘primary dealer’ scheme designed to increase demand for the debt and widen the range of investors. Accordingly, an SAR3.5 billion ($933.3 million) sukuk was issued under the new system at the end of July.
Total bank claims rose by 5.4 percent in June, year-on-year. Credit to the private sector continued to rise for the third consecutive month, up by 0.6 percent year-on-year. On a maturity basis, long term credit continued to fall, whilst both short- and medium term credit continued to rise. Looking ahead, Jadwa expects continued improvement in credit as a result of improving economic sentiment related to higher oil prices and due to the larger disbursement of government capital spending. Overall, Jadwa expects bank credit to the private sector to rise marginally in 2018, by 1 percent year-on-year.
Foreign exchange reserves
Saudi Arabian Monetary Authority (SAMA) foreign exchange reserves rose by $1.8 billion month-on-month in June to stand at $506 billion. Reserves have risen by $10 billion during the year so far and Jadwa expects them to reach $536 billion by the end of the year. A breakdown of reserves shows the monthly rise came wholly from SAMA bank deposits. Whilst an improvement in export revenue will be one of the main factors behind a rise in reserves during the year, Jadwa also expects higher levels of portfolio investment inflows to help strengthen the non-reserve financial account and hence foreign exchange reserves.
Prices rose by 2.1 percent year-on-year in June and inched slightly up by 0.1 percent month-on-month. Food and beverages prices rose by 5.7 percent, and housing and utilities fell by 1.4 percent year-on-year, declining for the second consecutive month. The decline was affected by lower prices in rentals for housing which dropped by 0.8 percent month-on-month, and 3.8 percent year-on-year in June, marking the largest yearly decline since July 2017.
GaStat recently released a report on industrial production in Saudi Arabia. The index for industrial production (IIP) measures the real production output of manufacturing, mining and utility supply in the kingdom. The latest data for Q4 2017, released in July, showed a decline in the overall index by 2 percent quarter-on-quarter, and by 0.3 percent year-on-year. The IIP is considered to be one of the most important short-term economic indicators since it is used to identify development trends and to forecast GDP. According to the IIP index, manufacturing output rose by 17.5 percent in Q4 2017 year-on year. However, in Q1 2018, manufacturing saw a decline in the total number of foreign and Saudi workers, with the number of foreigners dropping by 19,000.
Brent oil prices showed no change month-on-month in July. The combination of renewed trade tensions between the US and China and rising oil output from OPEC/non-OPEC producers and the U.S. dampened the rally in prices. That said, WTI oil prices rose nearly 5 percent month-on-month on the back of declining commercial crude oil stocks. While recent OPEC demand forecasts show healthy growth in 2018 and 2019 based on the assumption that the current trade dispute will be resolved, any further escalation could have a dramatic effect on demand.
Saudi crude oil production reached 10.4 million barrels a day (mbpd) in June. Meanwhile, official data shows exports declined by 300,000 barrels per day (bpd) month-on-month in May to 7 mbpd. Initial data suggests oil exports hit 7.4 mbpd in June and then declined to 6.9 mbpd in July as a result of higher domestic crude oil consumption linked to demand for electricity generation.
Although the July Tadawul All-Share Index (TASI) was flat month-on-month, year-to-July gains stood at around 16 percent making it the best performing equity market so far this year compared to major international and regional markets. Looking ahead, Jadwa expects the inclusion of Tadawul in both the FTSE EM and MSCI EM to bring in a minimum of $15 billion in passive inflows by the end of 2019.