The Saudi economy is showing deepening signs of strain under the weight of cheap oil.
Saudi consumers withdrew and spent less money in February, according to central bank data released on Monday. M3, one of the broadest measures of money supply, shrank for the first time since at least 2000, when Bloomberg started tracking the data.
While the kingdom still has one of the world’s largest foreign-currency reserves, cuts in government spending to shore up public finances are taking a toll on the economy.
Growth may slow to 1.5% this year, according to the median estimate of a Bloomberg survey, the slowest pace since at least 2009. Saudi officials have repeatedly said that the nation can weather the slump in oil prices.
“The data reflect weaker consumer confidence,” said Simon Kitchen, head of macro-strategy at Cairo-based investment bank EFG-Hermes. “Oil prices remain low, in spite of the February- March recovery, and disposable incomes have been under pressure this year. A recovery in consumer sentiment is unlikely in 2016.” Cash withdrawals through ATMs fell 8% after expanding for at least the previous five months, central bank data show. Point-of-sale transactions, an indicator of consumer confidence in the economy, dropped 9% from the year- earlier period to 15.2bn riyals ($4.1bn).
And while bank credit to private businesses expanded about 10%, the growth likely reflects short-term borrowing, according to Monica Malik, the chief economist at Abu Dhabi Commercial Bank.
“The rise in credit doesn’t indicate business expansion,” she said. “Actually, project activity has fallen substantially.
All in all, lower government spending is taking a deepening toll on economic growth, and we can see it in the data.” The government is seeking to plug a budget deficit that reached about 15% of gross domestic product in 2015. Authorities have also raised energy prices.
Brent crude tumbled more than 50% from almost $111 a barrel at the end of 2013 to below $30 in January. They have rebounded since to $40.01 in London yesterday.
Malik said the contraction of money supply likely reflects the government’s withdrawal of domestic deposits and the drop in net foreign assets, which declined 38bn riyals.
The pace of the drop was the slowest since October as Brent crude prices rebounded during the month. Oil exports make up about 70% of the government’s revenue.