Data released this week show that real GDP grew by +1.2% y/y in Q1, rebounding from four consecutive quarters of contraction and -0.7% in full-year 2017 that came on the back of the end-2016 OPEC agreement to cut oil output, the impact of which has now faded. Supply-side data show that the oil sector increased by +0.6% y/y in Q1 while the non-oil sector grew by +1.6%, the second fastest performance in nine quarters. Looking ahead, we expect the recovery to gain further momentum in the course of 2018, for several reasons. First, fiscal stimulus measures implemented in Q2 to offset the blow to incomes from austerity measures at the beginning of the year will support activity. Second, the non-oil private sector PMI rose to a six-month high of 55.0 in June, driven by accelerating output and new orders components, which bodes well for the non-oil sector in H2. Third, the largest boost to growth is likely to come from the revised OPEC agreement from end-June which is expected to result in an increase of Saudi oil output by up to +0.5 million barrels per day. Overall, we are likely to revise upwards our current GDP growth forecast of +1.7% in full-year 2018 soon.
