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Saudi Economy Losing Steam

Saudi Economy Losing SteamSaudi Economy Losing Steam

Growth in Saudi Arabia’s consumer spending is slowing as low oil prices hit households’ disposable income and geopolitical tensions make shoppers more cautious, the chairman of one of the country’s top retailing chains said.

The slide in the oil price from over $100 a barrel in mid-2014 to just over $30 has forced Saudi Arabia, the world’s biggest crude exporter, into budget cuts that have eaten into the income of many Saudis working in the public sector, crimping their spending power, Reuters reported.

Muhammad al-Agil, chairman of Jarir Marketing Co, said he did not expect the slowdown to be as serious as an oil price crash that hit Saudi Arabia in the mid-1980s, halting his company’s expansion for a year.

Jarir would continue to grow by taking market share from competitors and opening more stores, he told Reuters in an interview.

But Agil said Jarir, which sells books, office supplies and consumer electronics from 33 stores across Saudi Arabia, as well as six in other Persian Gulf Arab countries, was feeling a slowdown that had begun in earnest during the past six weeks.

“Definitely people’s wallets are getting smaller,” he said, adding: “When people are worried about anything, they spend less, especially on the unnecessary (things).”

 Deep in Deficit

Jarir’s experience suggests the Saudi economy may continue to lose steam early this year. The government began cutting state spending in the second half of 2015 as the plunge in oil prices pushed its finances deep into deficit, but for most of that period, consumers continued to spend freely.

Now that private consumption has lost some momentum, economic growth may fall considerably from last year’s rate of 3.3%. Private consumption accounted for 41% of gross domestic product in the third quarter of 2015.

Agil said the government’s spending curbs had cut overtime payments and other bonuses to employees in the public sector, where most Saudi citizens work, and may have reduced their income by about 10% in this way.

Meanwhile, geopolitics has dampened consumer sentiment, he said. Saudi Arabia has been embroiled in a military intervention in Yemen since early last year.

Total consumer spending is continuing to grow, although at a slower rate, because spending on staple goods is holding up, but spending on discretionary items such as consumer electronics is shrinking, Agil said.

Agil insisted that Saudi Arabia’s young and growing population, as well as a trend for women to join the workforce–boosting families’ income even in tough times–meant it still made sense to invest in an era of low oil prices.

Financialtribune.com