The overall narrative for the Saudi economy in 2021 still holds. Oil production will bounce back in the second half of 2021; combined with the recovery pace of the private sector, the Saudi economy can still look forward to a solid growth rate of 2.9% in 2021, despite the 3.0% decline in the first quarter. The PMI has edged up again in May, and we are confident that the growth momentum for the manufacturing sector as well real estate and construction will be maintained.
Construction and real estate in particular will benefit from the latest initiatives connected with Vision 2030. Capital expenditures will be ramped up considerably in the next couple of quarters, with the Shareek programme gathering traction. Shareek was announced by Crown Prince Mohamed bin Salman (MBS) earlier in 2021 and foresees a private sector led investment drive for the Saudi economy.
When and by how much the VAT will be reduced again remains a key issue for the outlook, since MBS has said recently that it will be brought into line with the 5% level agreed with other GCC countries again. However, he remained vague about when exactly, saying that the rate change will come once the budget balanced, which at current estimates will happen in 2025. We have not factored the VAT rate reduction in our forecast yet, but will do so as soon as the timing and impact becomes more concrete.