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Consumer spending growth is already weakening as the fiscal retrenchment bites. It’s forecast to slow to between 2 and 3% in 2017 and 2018, from 6 to 7% during the past decade.
Consumer spending growth is already weakening as the fiscal retrenchment bites. It’s forecast to slow to between 2 and 3% in 2017 and 2018, from 6 to 7% during the past decade.

Saudis Getting a Taste of Austerity

It’s getting harder for young Saudis on the job market as the kingdom faces one of the world’s highest youth unemployment rates

Saudis Getting a Taste of Austerity

Fahad bin Raja sells cars for a living in Saudi Arabia’s capital. Abdullah Saeed drives them. In the kingdom’s new age of austerity, both men are finding it harder to make ends meet.
Saeed, 63, says his monthly rent of about 2,000 riyals ($560) is covered by social insurance payments, but that leaves the cost of supporting his wife and five of his nine children who live at home. He drives a taxi and his wife sells home-made perfumes. As higher fuel and utility bills eat into his income, he says “it’s getting very hard to earn money in Riyadh,” Bloomberg reported.
Saudi consumers are getting squeezed by the government’s master-plan to rein in spending and reduce dependence on energy exports after a two-year oil slump. Subsidies for gasoline, electricity and water have been slashed, and there’s more to come. Deputy Crown Prince Mohammed bin Salman, the program’s architect, is promising to curb public-sector wages, and visa fees have been increased, raising the cost of importing home help.
Consumer spending growth is already weakening as the fiscal retrenchment bites. It’s forecast to slow to between 2 and 3% in 2017 and 2018, from 6 to 7% during the past decade, according to London-based Capital Economics. Imports from the European Union dropped by about 10% in the first quarter. ATM cash withdrawals and point-of-sales transactions also fell, central bank data show.
“The economic situation has gotten bad,” Bin Raja said, citing the Saudi-led war in Yemen as a drag on the kingdom’s economy.

Age of Abundance Over?
The 33-year-old is from a generation more accustomed to abundance than their parents. Adjusted for exchange rate, annual gross domestic product per person soared from $29,500 in 1990 to $53,624 last year, according to International Monetary Fund data.
The oil windfall changed the face of major cities, with shopping malls springing up and shops offering luxury brands. The ranks of the public sector swelled with millions of Saudi nationals, many paid more to do less.
This year, the economy is forecast to grow 1.5%, according to data compiled by Bloomberg. Excluding the 2009 global recession, that’s the slowest pace for more than a decade. The IMF estimates medium-term growth would settle around 2.5%, hardly enough to lower one of the world’s highest youth unemployment rates.
It's getting harder for young Saudis on the job market. The impact could have been worse. “The Saudis have avoided a crisis so far because of large reserves,” Bruce Riedel, a senior fellow at the Brookings Institution who spent 30 years at the Central Intelligence Agency, said.
The kingdom burned through about $175 billion of the central bank’s foreign assets since they peaked at $737 billion in August 2014 as the government sought to finance a budget deficit that reached 16% of economic output.
The kingdom's National Transformation Program envisages cutting public wages to 40% of spending by 2020, from 45% today. Other elements include selling shares in state companies—including the crown jewel, oil giant Saudi Aramco—setting up the world’s biggest sovereign wealth fund, and a bonfire of regulations that hold back private business. Businessmen are very concerned.
In the end, it may be younger Saudis who’ll determine if Prince Mohammed’s plan stands or falls. Almost 60% of the country’s 21 million citizens are under the age of 30.
Successful job-creation would make sacrifices worthwhile. For now, young people are noticing the changes too. “At home we’ve started to feel a bit of a sting in the day-to-day costs,” 20-year-old college student Aisha Saad said in an interview in Riyadh.

 

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