Economic Analysis - BMI Vs Consensus: Below Consensus On Saudi And Lebanese Growth - NOV 2017


This month in BMI Vs Consensus, we take a look at our below-consensus views on real GDP growth in Saudi Arabia and Lebanon.

Below consensus on Saudi Arabia growth: We are less bullish towards Saudi Arabia than Bloomberg consensus, forecasting real GDP growth of 1.6% in 2018, compared to 2.0% consensus. There are a number of factors behind our less sanguine outlook, not least that we expect only a gradual return to oil production growth. The current OPEC/non-OPEC agreement to curb production expires in March 2018, but Saudi Arabia continues to make clear that all options - including a further extension - are on the table, and our Oil & Gas team forecast only a 2.2% expansion in production next year. Aside from the oil economy, we are also unconvinced that there will be rapid progress on privatisations and other reforms associated with Vision 2030 and the National Transformation Plan (NTP). In September, it was reported that the NTP was being redrafted, which raises risks that progress will be slower than previously scheduled, and that non-oil revenues will take longer to materialise ( see 'NTP Redraft Poses Risk To Structural Reform', September 8 2017).

Below consensus on Lebanon growth: We are also below consensus on real GDP growth in Lebanon, where our forecast of a 2.5% expansion is markedly below the consensus projection of 3.0%. It should be noted that a 2.5% expansion would mark the fastest since 2013, and we are generally positive on Lebanon's growth trajectory. Continued improvements on the political front - where a new government and the adoption of a new electoral law mark progress from years of policy paralysis - and more positive external conditions (with improving security in Syria and Iraq reopening some trade routes) will drive this trend. However, these improvements will not be sufficient to prompt a return to the boom years seen between 2007 and 2010, when the economy expanded by an annual average of 9.2%. Dire public finances are prompting spending cuts and tax hikes, which will weigh on investment and final consumption. Further, there are deep-rooted structural impediments to growth in Lebanon, including a weak business environment which is tarred by corruption and excessive bureaucracy.

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