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Saudi Arabia’s economic growth is expected to turn positive in second half of 2024 with GDP set to grow at 1.7% in 2024 and 4.7% in 2025, research firm Credit Sights said.
The oil-rich kingdom’s real GDP shrank 0.4% year-on-year in Q2 2024, according to preliminary government data, as oil related activities declined. In 2023, real GDP shrank by 0.8% after rising 7.5% in 2022.
“To a large extent this recession was self-inflicted, with the authorities deliberately reducing oil production by 8.5% to support global prices--as well as the Kingdom’s public finances,” said Regis Chatellier, Head of EM Sovereign Strategy at CreditSights.
The recession is likely at an end the decline in real GDP was by lower YoY in Q2 2024, compared to -1.7% in Q1 2024 and -4.3 in Q4 2023.
Saudi Arabia’s terms of trade, however, remain supportive. If crude prices stay close to $80 per barrel, the external surplus should be slightly positive this year.
The kingdom's sovereign USD bonds have slightly underperformed this year (+2.7% year-to-date versus +.0% for EM IG index); they now trade 25 basis points tighter than the EM IG index.
The fiscal deficit could widen if oil prices were to decline, but CreditSights believes that the risk is limited given the global economic and geopolitical context.
“We maintain our ‘Outperform’ call on Saudi Arabia’s sovereign bonds,” said Chatellier. The risk-reward is relatively attractive at current market levels, especially in the long-end of the curve.
(Reporting by Brinda Darasha; editing by Seban Scaria)
