Saudi economy to remain resilient despite mixed signals

Inflation in Saudi Arabia, the region’s largest economy, is likely to remain steady at around 3.5 per cent -4.0 per cent over the coming years, a study by London-based research firm Capital Economics shows. “Saudi inflation has eased over the course of this year, in spite of fairly robust domestic demand. And looking ahead, we think price pressures are unlikely to become a major cause for concern. The fall in the headline rate appears to have been driven by easing core price pressures. Our measure of core inflation, which is our best attempt to strip out volatile food and energy prices, stood at 2.0% year-on-year in July, down from 3.1 per cent year on year at the start of the year,” said Capital Economics. In response to Gulf News’ questions by email, William Jackson, Emerging Markets Economist at Capital Economics, commented: “We think, Saudi Arabia’s growth may be weaker over the coming years than it has been over the past decade, but we (also) think, it’s highly unlikely that the economy will stall. The oil sector is becoming less of a drag on growth and, while the non-oil sector may weaken, it is still likely to grow at rates of 4 per cent, or so.” He added: “After all, the banks are in a healthy condition and the government’s fiscal position is strong enough that it can respond to any sharp deterioration in the economy by ramping up spending. As such, we’re projecting growth of around 3.5 per cent a year over the coming years. This would imply that core inflation pressures are unlikely to build up. At the same time, we don’t expect commodity prices to rise, so non-core inflation is unlikely to accelerate further — in fact, we think it is likely to fall.” Capital Economics previously said in a report the oil-rich Saudi Arabia’s economy is likely to grow anywhere between 3.0 per cent to 3.5 per cent this year as the drag on growth from the oil sector appears to be easing while the non-oil sector continues to grow at a robust pace.