Saudi consumer spending set to drop in 2020: report

Saudi consumer spending is expected to decrease in 2020 mainly due to weaker demand due to shut down during Covid 19 and reduced purchasing power due to increase of VAT from 5% to 15% effective from July 2020, a report said.

An additional factor would be removal of cost of living allowance of SR1,000 ($266) per month from June 2020, according to a report from Al Rajhi Capital, a leading financial services provider in the Kingdom.

The overall Saudi consumer spending is expected to decline significantly in 2020e and moderately in 2021e before gradually recovering 2022e onwards, the report said.

“Therefore, for the Saudi consumer sector, we cut near-term revenue growth but in medium to longer-term we expect large players to become larger due to consolidation arising in the aftermath of Covid 19. We advise investors to have a longer-term view on the KSA consumer sector and buy at troughs/dips to position for a longer-term. Our top picks in the consumer space are Al Othaim, Extra, and Sadafco,” the report said.

“Saudi Arabia’s oil revenue is at SR324 billion, lower than our previous estimate of SR342 billion. Despite a 10% increase in VAT, we factor only a SR28 billion increase in VAT revenue because of possible pre-buying by consumers as VAT comes into effect from July 1.

“If VAT stays at 15% for 2021, we expect additional revenue from this to be SR88 billion. In terms of fiscal expenditure, the cost of living allowance amounts to SR40 billion as per our estimates. Though the Govt. estimates no change in forecasted overall expenditure for 2020, we estimate SR60 billion lower expenditure at SR960 billion leading to a fiscal deficit of SR333 billion (which is around 11.5% of 2019 nominal GDP),” Al Rajhi capital said in the report. – TradeArabia News Service




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