Just how badly is the Saudi economy being hurt by low oil prices and government austerity? It’s hard to tell, given the slow pace of official data releases, but the signs are that the problems in the kingdom are mounting up.
ATM cash withdrawals and point-of-sale transactions have been lower for most of this year compared to last year, although they did show growth in May (the most recent month available), according to the country’s central bank, the Saudi Arabian Monetary Agency (Sama).
At the same time, GDP in the trade, hotels and restaurants sector was down 0.8% year-on-year in the first quarter of this year, according to London-based Capital Economics – a sure sign of weak consumer spending.
And bank deposits have also been on the slide. Data from Sama show a 0.5% drop in the value of deposits in May, contributing to a fall of 3.4% over the past 12 months. That’s the largest 12-month fall since August 1994, according to ratings agency Moody’s.
Olivier Panis, a senior credit officer at Moody’s, says this is bad news for Saudi banks. “The declines are credit negative for Saudi banks because they add to the liquidity pressure that banks are already experiencing as a result of the drop in oil prices and associated government revenues,” he says. “Tightening liquidity is negatively affecting banks’ loan-to-deposit ratios and liquid asset levels and will negatively affect banks’ cost of funding and profitability.”
On the other hand, the most recent purchasing managers index (PMI) from Markit and Emirates NBD, which offers an insight into the health of the non-oil economy, suggests that many businesses are still expanding. Output and new orders rose in June and the index was at 54.4 points for the month, down only slightly on the figure of 54.8 points in May (anything over 50 points indicates growth).
“The non-oil sector in Saudi Arabia is expanding at a robust rate, despite low oil prices, government spending cuts and more recently, higher interbank lending rates,” says Khatija Haque, head of MENA research at Emirates NBD.
Which among all of these factors gives the most accurate picture of the state of the economy is a matter of judgement rather than fact, but Jason Tuvey, Middle East economist at Capital Economics, thinks the Saudi economy is struggling and expects growth to be weak at best this year.
