Oil slump doesn't affect Saudi consumer confidence
Even though there's an oil slump and subsequent slowdown in oil revenue, Saudi Arabian consumers are still spending like they did before, reports Bloomberg.
The country's rulers prefer to run budget deficits rather than stop sharing Saudi Arabia's oil wealth with its citizens. However, the International Monetary Fund predicts a fiscal gap exceeding 20 percent of economic output this year, and says at that rate Saudi savings would run out after five years. Standard & Poor has also cut the country's credit rating.
But for regular citizens, there has been no difference in the quality of life. “Directly, the cuts are not going to affect a typical household,” Farouk Soussa, London-based Middle East Economist at Citigroup Inc., told Bloomberg. They probably won’t touch “the social safety net, the welfare transfers or any of the social expenditures the government undertakes,” he said.
Average monthly retail sales in the country are up over 10% this year. The Granada Center mall in the capital Riyadh has remained packed. Sales staff at M.A.C Cosmetics ask customers to form lines outside the store, and employees say business has never been better.
However, Monica Malik, chief economist at Abu Dhabi Commercial Bank, is expecting a decrease in consumer demand. “The expectation of oil prices remaining low for longer is central to this change in sentiment,” she said. “We expect to see some fiscal retrenchment in Saudi Arabia going forward, which will likely impact consumer demand.”
Saudi Arabia has seen a dramatic swing into deficit and its economy will probably grow 3% this year, down from 3.5% in 2014.
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