Saudi Arabia: Monthly Economic Report - October 2017

Transcription

1. Economic Research Monthly Economic Report October 2017 Research Department ARC Research Team Tel . +966 11 211 9449, alsudarim@alrajhi-capital.com Saudi Arabian Economy Saudi economy: Consumption picks up Saudi Arabia’s economy contracted for the second straight quarter in Q2 2017, as GDP declined 1% y-o-y in Q2 2017, following a 0.5% y-o-y fall in Q1 2017. The decline in the GDP is primarily due to lower oil production resulting from the agreement with OPEC and non-OPEC members to limit supply. The non-oil sector grew at a moderate pace (+0.6% y-o-y), flat compared to the previous quarter, as government sector growth (+1% y-o-y) improved, offsetting the slowdown in private sector (+0.4%). Meanwhile, monthly data for August indicated strong consumer spending, with POS transactions (+10.3% y-o-y) and ATM withdrawals (+4% y-o-y) rising at healthy pace. Credit to the private sector recovered (+0.4% m-o-m) in August, after declining over the previous two months, whereas deposits were down sequentially for the second consecutive month (-0.6% m-o-m). SAMA’s reserve assets continued to decline in August (-1.4% m-o-m), which can be partially attributed to the country’s increased investment activities. However, government reserves with SAMA were unchanged in August from the previous month. The recently raised US$ 12.5bn via the third international bond sale should slowdown the pace of drawdown of the reserve assets. Moody’s has assigned A1 rating to the Saudi Arabian global notes issued under the government’s medium-term notes (MTN) program, indicating high level of fiscal and economic strength. Nevertheless, quarterly labor data showed that unemployment continued to rise, albeit at a slower pace, reaching 12.8% among Saudi nationals by Q2 2017, from 12.7% in the previous quarter. On the positive side, average monthly wages improved marginally for Saudi nationals (+0.3% q-o-q) from the previous quarter, while overall average monthly wages rose more sharply (+4% q-o-q). Meanwhile, the government took a major step towards achieving one of its targets under the “Vision 2030”, allowing women to drive after decades of ban. The move will make it easier for women to find employment and increase their participation in the labor force, thereby boosting household income and spending. The government is expected to continue the reforms and is likely to announce another round of hike in transport fuel and utility prices in the coming months. Saudi Arabia raised US$12.5bn from its third international bond sale. The 5 year bond was offered at 110 bps over the US treasuries, the 10 year at 145 bps and the 30 year at 180 bps. The bond sale attracted bids of US$ 40bn. Q2 2017 GDP contracted 1.0% y-o-y, compared to 0.5% decline last quarter, dragged down by the oil sector. The oil sector fell 1.8% y-o-y in Q2 2017, versus the fall of 2.3% in Q1 2017, while the non-oil sector grew by 0.6% y-o-y in Q2 2017, nearly same as the previous quarter. SAMA revised mortgage rules in order to provide an impetus to the housing sector. The central bank announced an exemption from administrative fees for mortgage holders in case of switching between fixed and floating rate loans. Further, mortgage holders can move to new lenders without paying an additional charge. Under the NTP 2020, the government targets to increase the percentage of Saudi family homeowners to 52% by 2020 from 47%. Please see penultimate page for additional important disclosures. Al Rajhi Capital (Al Rajhi) is a foreign broker-dealer unregistered in the USA. Al Rajhi research is prepared by research analysts who are not registered in the USA. Al Rajhi research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities, an SEC registered and FINRA-member broker-dealer.
2. Economic Research Monthly Economic Report October 2017 Point-of-sale (POS) transaction indicated strong consumer spending activity, recording a 10.3% y-o-y rise in August 2017, as against the rise of 12.8% y-o-y in July. Meanwhile, the ATM transactions grew by 4.0% y-o-y in August 2017 versus the rise of 2.4% y-o-y in July 2017. Q2 2017 labor data indicated that employment of Saudi nationals increased by 13.5k during the quarter. However, as ~28.9k people were added to the Saudi labor force, Saudi unemployment rose slightly to 12.8% in Q2 from 12.7% in the previous quarter. Even while unemployment increased, average monthly wages of Saudi nationals rose marginally on a sequential basis (+0.3% q-o-q), though the figure was lower~5% y-o-y. Despite the increase in Saudi employment, overall employment was down by ~48k in Q2. Total labor force declined ~132.5k, indicating that a lot of expats went out of the labor force. Overall unemployment increased to 6% from 5.8% in the previous quarter. Overall average monthly wages rose 4% m-o-m, but was still down 3% y-o-y. Kingdom’s non-oil exports witnessed a yearly rise of 28.0% in July 2017, after recording a fall for two straight months, while the non-oil imports, too, grew by 16.0% y-o-y in July 2017, compared to the drop of 29.0% y-o-y in the previous month. Banking sector profits continued to stood at SAR3,964 mn in August 2017, almost flat mo-m, but up 5.3% y-o-y. Foreign reserve assets declined in August 2017, to its lowest levels since May 2011. Meanwhile, the deposits grew 2.6% y-o-y (-0.6% m-o-m), whereas credit to the private sector slipped 1.2% y-o-y in August (+0.4% m-o-m). Crude oil prices (Brent November futures contract) advanced 8.9% m-o-m in September 2017, as the US oil refineries restarted operations after disruptions caused by hurricane. Further, the oil prices were also supported by prospects of possible extension of the OPEC output cut deal and signs of reducing global glut. Deflation persisted in the Kingdom in August 2017, owing to the prevailing fall in food and beverages sector along with the drop in housing, water, electricity & gas sector. Meanwhile, on a sequential basis, the index remained unchanged in August 2017. Crude price outlook: The US Energy Information Administration (EIA) in its September 2017 report estimated Brent crude oil prices to average around US$51/barrel in 2017 and US$52/barrel in 2018. Figure 1 Key macro indicators Variable Sep-17 Aug-17 Jul-17 2016 2015 - -0.1% -0.3% 3.5% 2.2% Sep-17 Aug-17 Jul-17 2016 2015 55.0 49.6 47.1 41 49.9 Sep-17 Aug-17 Jul-17 2016 2015 Money Supply (M3) - 2.4% 2.7% 0.8% 2.5% Total Banking Sector Claims - 2.7 2.2 9.1 10.5 1.794 1.797 1.793 2.066 0.88 Repo Rate 2.00 2.00 2.00 2.00 2.00 Reverse Repo Rate 1.25 1.25 1.25 0.75 0.5 General Share Price Index (1985=1000) - 19.4 12.6 4.3 -17.1 Q1 2017* Q4 2016 2016* 2015 GDP Rate at Constant Prices (2010=100) - -0.5% 2.2% 1.7% 4.1% Q1 2017** Q4 2016* 2016* 2015 Inflation Rate (2007=100) Average Oil Price (Arab Light) (US$/Barrel) Interbank Interest Rate (3 Month) Current Account to GDP Ratio (current prices) - 3.9% -1.4% -4.3% -8.7% Total Imports (fob) to GDP Ratio (current prices) - 17.9% 18.0% 19.8% 24.3% Non-oil Exports to GDP Ratio (current prices) - 7.0% 7.4% 7.3% 7.7% Source: SAMA, * Provisional, **Adjusted. Arab light and Interbank interest rate data is as on 26 September 2017. Disclosures Please refer to the important disclosures at the back of this report. 2
3. Economic Research Monthly Economic Report October 2017 Gross Domestic Product Kingdom ’s GDP declined by 1.0% According to the GDP data released by GASTAT, the Kingdom’s Q2 2017 GDP dropped by 1.0% y-o-y (-0.5% y-o-y in Q1 2017), dragged down by the oil sector (-1.8% y-o-y Vs -2.3% yy-o-y in Q2 2017 o-y in Q1 2017). The oil sector is negatively impacted by the OPEC output cut deal, which the cartel is building a consensus to extend amidst signs of reducing global glut. Meanwhile, the non-oil sector rose by 0.6% y-o-y in Q2 2017, nearly same as the previous quarter, buoyed by the government sector. Figure 2 Quarterly GDP Trend (y-o-y growth) Real GDP by type of economic activity Share in GDP Q2 2017 Q1 2017 Q4 2016 Q3 2016 Agriculture, Forestry & Fishing 2.5% 0.6% 0.8% 3.1% 1.4% Mining & Quarrying 40.1% -2.4% -2.3% 3.8% 3.4% Manufacturing 12.2% 1.6% 2.3% 3.1% 3.6% Electricity, Gas and Water 1.6% 1.1% -1.6% 5.8% 6.2% Construction 4.6% -1.6% -3.2% -2.2% -3.9% Wholesale & Retail Trade, Restaurants & hotels 8.5% -0.1% 0.3% -2.0% -1.4% Transport, Storage & Communication 5.9% 0.8% 1.0% 4.4% 1.8% Finance, Insurance, Real Estate & Business Services 9.6% 1.9% 1.1% 3.8% 2.2% Community, Social & Personal Services 2.0% 0.9% 0.4% 1.9% 1.5% Producers of Government Services 13.1% 0.9% -0.4% 0.5% -3.9% 100.0% -1.0% -0.5% 2.2% 1.2% Gross Domestic Product Source: GAS, Al Rajhi Capital Figure 3 Real GDP trend at constant prices (y-o-y) 15.0% 8.0% 6.0% 10.0% 5.0% 4.0% 3.3% 2.9% 2.0% 2.6% 0.3% 4.4% 5.0% 8.1% 8.0% 6.0% 3.0% 0.0% 4.1% 4.0% 0.2% 0.6% 0.0% 0.7% 6.2% 6.1% 6.0% 0.6% 0.3% -2.1% 4.2% -2.0% 4.6% 0.6% -2.3% -0.7% 0.6% -1.8% -4.0% -6.0% -5.0% -8.0% Q1 Q2 Q3 Q4 Q1 2014 Q2 Q3 Q4 2015 Oil Sector Non-Oil Sector Q1 Q2 Q3 2016 Q4 Q1 Q2 2017 GDP (RHS) Source: GAS, Al Rajhi Capital Labor market update Saudi unemployment reached 12.8% in Q2 2017 Unemployment continued to rise in the Kingdom with overall unemployment reaching 6% in Q2 from 5.8% in Q1. Saudi unemployment also increased, though at a slower pace (Q2: 12.8%, Q1: 12.7%). Saudi unemployment increased even as 13.5k new Saudi jobs were added during the quarter, as the Saudi labor force grew by 28.9k. On the other hand, non-Saudi employment declined ~61.5k during the quarter. Despite the increase in unemployment, data indicated a rise in average monthly wages (+4% q-o-q) to SAR6,195. Average monthly wages of Saudi nationals rose by a marginal 0.3% q-o-q to SAR9,911. Disclosures Please refer to the important disclosures at the back of this report. 3
4. Economic Research Monthly Economic Report October 2017 Figure 4 Unemployment has been rising Figure 5 Average monthly wages in the Kingdom 13 .0% 12.7% 12.5% 12.8% 12.3% 12.1% 6.1% 6,600 6.0% 6,400 5.9% 6,200 5.8% 6,000 5.7% 5,800 5.6% 5,600 5.5% 5,400 5.4% 5,200 5.3% 5,000 Title: Source: 10,600 10,400 Please fill in the values above to have them entered in your10,200 report 10,000 12.0% 9,800 9,600 11.5% 11.7% 11.6% 11.5% 9,400 9,200 11.0% 10.5% 2014 2015 Q2 2016 Q3 2016 Saudi unemployment rate Q4 2016 Q1 2017 9,000 8,800 H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 Q4 2016 Q1 2017 Q2 2017 Q2 2017 Total Total unemployement rate (RHS) Source: GASTAT, Al Rajhi Capital Saudis (RHS) Source: GASTAT, Al Rajhi Capital Consumer spending indicators POS and ATM data indicated that consumer spending continued to be strong in August 2017. POS transactions climbed 10.3% y-o-y in August 2017, versus a 12.8% y-o-y rise in July 2017. ATM cash withdrawals rose by 4.0% y-o-y in August 2017, as against the annual rise of 2.4% in the previous month. Spending growth was primarily seen in the ‘Restaurants and Hotels’ (+19.3% y-o-y), ‘Clothing & Footwear’ (+13.9% y-o-y) and ‘Food & Beverages’ (+13.4%), whereas spending fell in the ‘Transportation’ sector (-4.9% y-o-y). Consumer spending remained strong in August 2017 Figure 6 Point-of-sale transactions (POS) trend Figure 7 ATM cash withdrawals trend SAR bn 20.0 40% 18.0 30% 16.0 14.0 20% 12.0 10.0 10% 8.0 0% 6.0 4.0 -10% 2.0 - -20% POS YoY Source: SAMA, Al Rajhi Capital Disclosures Please refer to the important disclosures at the back of this report. SAR bn 80.0 50% 70.0 40% 60.0 30% 50.0 20% 40.0 10% 30.0 0% 20.0 -10% 10.0 -20% - -30% ATM Cash withdrawals YoY Source: SAMA, Al Rajhi Capital 4
5. Economic Research Monthly Economic Report October 2017 Figure 8 Points-of-sale transactions trend by sectors YoY change 40 .00% 30.00% 20.00% 10.00% 0.00% -10.00% -20.00% -30.00% Dec-16 Jan-17 Transportation Feb-17 Mar-17 Rest. and Hotels Apr-17 May-17 Food & Beverages Jun-17 Jul-17 Aug-17 Cloth. and Footwear Source: GAS, Al Rajhi Capital Foreign reserve assets Foreign reserve assets in August 2017 dropped to its lowest level since May 2011 Kingdom’s reserve assets continued to fall in August 2017, down 13.2% y-o-y, versus a fall of 12.6% y-o-y in July 2017. On a monthly basis, too, reserves fell by 1.4% (-1.2% m-o-m in July 2017), to stand at SAR 1,829bn (US$ 487.7bn). The government recently raised US$ 12.5bn via the third international bond sale, which may curb the government’s need to tap its foreign reserve assets to plug its fiscal deficit. Figure 9 Reserves assets Figure 10 Major components of foreign assets SAR bn 3,000 20.0% SAR bn 2,500 15.0% 2,500 10.0% 2,000 2,000 5.0% 1,500 1,500 0.0% -5.0% 1,000 1,000 -10.0% 500 500 -15.0% 0 -20.0% Reserves Assets YoY (RHS) Source: SAMA, Al Rajhi Capital 0 Foreign Currency & Deposits Abroad Investment in Foreign Assets Source: SAMA, Al Rajhi Capital Credit and deposit growth Private sector credit growth rose on a monthly basis in August, while deposits continued to fall Banking sector credit to the private sector declined for the sixth straight month, falling 1.2% y-o-y, compared the drop of 1.5% y-o-y in July 2017. However, on a monthly basis, credit to private sector rose (+0.4% m-o-m) after falling for two consecutive months. Claims on the public sector climbed 27.7% y-o-y, owing to the rise in government bond holdings. Meanwhile, deposits rose by 2.6% y-o-y in August 2017 (-0.6% m-o-m). ‘Business and Individual’ deposits, which constitute for over 70% of the total deposit base rose 0.9% y-o-y (0.2% m-o-m), while ‘Government Entities’ deposits climbed 23.8% y-o-y (-0.3% m-o-m). Disclosures Please refer to the important disclosures at the back of this report. 5
6. Economic Research Monthly Economic Report October 2017 Figure 11 Credit and deposit growth Figure 12 Loans to Deposits YoY 20 .0% 92.0% 90.0% 15.0% 88.0% 86.0% 10.0% 84.0% 5.0% 82.0% 80.0% 0.0% 78.0% -5.0% 76.0% -10.0% 74.0% Deposits Credit Source: SAMA, Al Rajhi Capital Loans to Deposit ratio Source: SAMA, Al Rajhi Capital Money supply Money Supply (M3) continued to rise in August 2017 The broader money supply (M3) grew by 2.4% y-o-y in August 2017, to reach SAR 1,795bn, as against the yearly rise of 2.7% in July 2017. Growth in the M3 indicator has witnessed a rise, owing to higher demand deposits. On a monthly basis, M3 dropped by 0.4% as compared to the fall of 1.0% last month. However, as per the weekly money supply data, the M3 may slow down slightly in September 2017. Figure 13 Money supply growth (y-o-y) Figure 14 Deposits break-up SAR bn 1,200 25.0% 20.0% 1,000 15.0% 800 10.0% 5.0% 600 0.0% 400 -5.0% 200 -10.0% -15.0% 0 M1 M2 M3 Source: SAMA, Al Rajhi Capital Time and Saving Deposits Demand Deposits Source: SAMA, Al Rajhi Capital Banking Sector Banking profits gained in August for the second straight month The banking sector profits rose by 5.3% y-o-y in August 2017, as against the annual rise of 10.4% y-o-y in the previous month. The cumulative banking sector profits totaled SAR 30,177mn in 2017, down 0.7% y-o-y. Disclosures Please refer to the important disclosures at the back of this report. 6
7. Economic Research Monthly Economic Report October 2017 Figure 15 Non-performing loans Figure 16 Net Profit for Banks SAR mn 5 ,000 1.5 4,500 1.4 4,000 3,500 1.3 3,000 1.2 2,500 2,000 1.1 1,500 1.0 1,000 500 - Nonperf orming loans to total gross loans Source: SAMA, Al Rajhi Capital. Q3 2017 data not released yet. Source: SAMA, Al Rajhi Capital Inflation dynamics Deflation prevailed in the Kingdom in August 2017 for the eighth straight month Cost of living index continued to be in the deflation territory for the eighth consecutive month in August 2017 registering at -0.1% y-o-y. Sectors like the ‘Food & Beverage’, ‘Housing, Water, Gas & other Fuels’, ‘Transport’, and ‘Furnishings, Household Equipment & Maintenance’, which constitute ~62% of the index, dropped on a yearly basis in August by 1.8%, 0.5%, 1.6% and 1.0%, respectively. On a monthly basis, the cost of living index remained unchanged in August 2017. Figure 17 Inflation trend (y-o-y) 5.0% Figure 18 Inflation drivers (y-o-y) 14.0% 12.0% 4.0% 10.0% 8.0% 3.0% 6.0% 4.0% 2.0% 2.0% 0.0% 1.0% -2.0% -4.0% 0.0% -6.0% -1.0% General Index Source: GAS, Al Rajhi Capital Disclosures Please refer to the important disclosures at the back of this report. Food And Beverages Furnishings, Household Transport Housing, Water, Electricity, Gas Source: GAS, Al Rajhi Capital 7
8. Economic Research Monthly Economic Report October 2017 Crude oil dynamics Crude oil production decreased on a monthly basis in August 2017 to reach 10 .0mbpd Crude oil output in the Kingdom declined on a monthly basis in August 2017, to stand at 10.0 mbpd, after rising for two straight months. Meanwhile, on a yearly basis, crude oil production fell by 6.0% in August 2017. The crude oil prices (Brent November futures contract) jumped 10.6% MTD in September 2017, as US refineries restarted their operations post the hurricane disruption. Further, signs of reducing global glut coupled with possible extension of the OPEC output cut deal also boosted the prices. Arab light also rose 12.0% MTD in September 2017. Figure 19 Saudi crude oil production trend Figure 20 Crude oil prices trend 70 10.8 12.0% 10.6 10.0% 10.4 8.0% 10.2 6.0% 10.0 4.0% 50 9.8 2.0% 45 9.6 0.0% 40 9.4 -2.0% 35 9.2 -4.0% 30 9.0 -6.0% 25 8.8 -8.0% Saudi Crude oil production 65 60 55 20 YoY growth Brent Source: Bloomberg, Al Rajhi Capital WTI Arab Light Source: Bloomberg, Al Rajhi Capital Non-oil foreign trade Non-oil exports and imports witnessed a yearly rise in July 2017 Kingdom’s non-oil exports advanced 28.0% y-o-y in July 2017, after registering a fall for two consecutive months. Exports were supported by the rise in plastic & rubbers (29.1% y-o-y), which constituted 36.5% of the total non-oil exports, followed by chemical products (25.7% yo-y), which contributed 29.5% to the total exports. Further, non-oil imports jumped 16.0% yo-y in July 2017, compared to the drop of 29.0% y-o-y in the previous month. The rise can be attributed to imports of machinery & electrical (+19.0% y-o-y) and transport equipments (+8.5% y-o-y) which together account for 38.5% of the total imports. Meanwhile, UAE was the topmost export destination accounting 14.4% of the total non-oil exports, while China was the top import nation comprising 17.5% of the total non-oil imports. Figure 21 Non-Oil Exports Commodities (SAR mn) May-17 Jun-17 Jul-17 % y-o-y % m-o-m Plastics & Rubbers 4,560 4,259 5,805 29.1% 36.3% Chemical Products 4,215 3,601 4,700 25.7% 30.5% Ordinary Metals 1,362 997 1,166 16.3% 17.0% Transport Equipments 1,125 955 1,114 61.4% 16.6% Others 3,692 2,248 3,132 24.7% 39.3% Total 14,954 12,060 15,917 28.0% 32.0% Source: GAS, Al Rajhi Capital Disclosures Please refer to the important disclosures at the back of this report. 8
9. Economic Research Monthly Economic Report October 2017 Figure 22 Non-Oil Imports Commodities (SAR mn) May-17 Jun-17 Jul-17 % y-o-y % m-o-m Machinery & Electricals 10,196 7,188 10,651 19.0% 48.2% Transport Equipments 6,089 5,943 5,994 8.5% 0.9% Ordinary Metals 4,027 3,046 3,856 1.0% 26.6% Chemical Products 3,933 3,077 4,609 40.6% 49.8% Others 19,425 13,538 18,091 15.4% 33.6% Total 43,670 32,792 43,201 16.0% 31.7% Source: GAS, Al Rajhi Capital Figure 23 Non-oil export trend (y-o-y) Figure 24 Non-oil import trend (y-o-y) YoY 70.0% YoY 60.0% 60.0% 50.0% 50.0% 40.0% 40.0% 30.0% 30.0% 20.0% 20.0% 10.0% 10.0% 0.0% 0.0% -10.0% -10.0% -20.0% -20.0% -30.0% -30.0% -40.0% -40.0% -50.0% Non-oil Export Non-oil Import Source: GAS, Al Rajhi Capital Source: GAS, Al Rajhi Capital Saudi International Bond Yields Saudi International bond yields rose on a MTD basis. Saudi International bond yields with 5 year maturity rose by 12.6bps MTD in September 2017 to 2.688%, while bond yields with 10 and 30 year maturities increased 23.8bps and 14.7bps, respectively to 3.411% and 4.451%. Figure 25 International Bond Yields 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 30 Yr 10 Yr 27-Sep-17 7-Sep-17 17-Sep-17 28-Aug-17 8-Aug-17 18-Aug-17 29-Jul-17 9-Jul-17 19-Jul-17 29-Jun-17 9-Jun-17 19-Jun-17 30-May-17 20-May-17 30-Apr-17 10-May-17 20-Apr-17 10-Apr-17 31-Mar-17 21-Mar-17 1-Mar-17 11-Mar-17 9-Feb-17 19-Feb-17 30-Jan-17 20-Jan-17 10-Jan-17 31-Dec-16 21-Dec-16 1-Dec-16 11-Dec-16 21-Nov-16 1-Nov-16 11-Nov-16 22-Oct-16 0.0% 5 Yr Source: Bloomberg, Al Rajhi Capital Disclosures Please refer to the important disclosures at the back of this report. 9
10. Economic Research Monthly Economic Report October 2017 IMPORTANT DISCLOSURES FOR U .S. PERSONS This research report was prepared by Al Rajhi Capital (Al Rajhi), a company authorized to engage in securities activities in Saudi Arabia. Al Rajhi is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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