Country Forecast Saudi Arabia September 2017 Updater

Country Forecast Saudi Arabia September 2017 Updater

  • September 2017 •
  • Report ID: 1698494 •
  • Format: PDF


  • The Al Saud family will retain its control over the Saudi political system. Ruling family dynamics will be dominated by the process of shifting power to the next generation, with the king, Salman bin Abdel-Aziz al-Saud, set to be the last son of the kingdom's founder, Ibn Saud, to sit on the throne. However, the continued advancement of his youthful son and new crown prince, Mohammed bin Salman al-Saud, risks raising internal family friction, notably with powerful princes aligned with the former interior minister and crown prince, Mohammed bin Nayef al-Saud. The crown prince will respond to such threats by appointing senior members of his own branch of the Al Saud to important official posts.
  • The government will adopt a proactive role in the region, with a focus on containing Iranian influence and counterbalancing the waning role of its long-standing ally (and security guarantor), the US. Under Crown Prince Mohammed bin Salman, the kingdom will seek to forge an anti-Iran axis, which will see Saudi Arabia maintaining its presence in Yemen and stepping up pressure on neighbouring Qatar to cut defence ties with Iran (albeit with little success).
  • Faced with low oil prices, the government will rein in subsidies, but will rely primarily on capital spending cuts to sustain high levels of spending on public-sector wages and benefits. Nonetheless, it will introduce new revenue-raising measures, including value-added tax, to shore up revenue and narrow the fiscal deficit. Taken together, the fiscal deficit should narrow in 2017, but still remain wide throughout the forecast period, averaging 7.1% of GDP a year in 2017-21.
  • As part of its National Transformation Plan and Vision 2030, the government will seek to boost the role of the private sector by stimulating investment in defence, manufacturing, tourism and renewables in particular. However, we expect these plans to be modified in the coming months as the government effects further cuts to capital expenditure. As a result, diversification plans will proceed at a slow pace during the forecast period.
  • Sharp cuts to oil production and government spending on capital projects will mean real GDP contracts in 2017. Rising crude production, alongside spending on capital projects thereafter, should restore growth in 2018-21.
  • Oil production will decline in 2017, in line with Saudi Arabia's commit-ments under the late-2016 OPEC agreement. We expect the deal to last until at least March 2018, and production to rise gradually subsequently, at a little over 10m barrels/day, as demand growth slows in the wake of an expected recession in the US in 2020.


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