Real GDP growth picked up to +1.6% y/y in Q2 from +1.2% in Q1. Both the oil sector (+1.3% y/y, after +0.6% in Q1) and the non-oil sector (+2.4% y/y, up from +1.6%) gathered momentum in Q2. Within the non-oil sector, non-oil private sector GDP expanded by +1.8% y/y (+1.1% in Q1) and non-oil public sector GDP rose by +4% y/y (+2.7% in Q1). The latter reflects fiscal stimulus measures implemented in Q2 to offset the blow to incomes from austerity measures at the beginning of the year. Looking ahead, we expect the recovery to gain further momentum in H2 2018, for several reasons. First, the non-oil private sector PMI, although easing to 53.4 points in September from 55.1 in August, posted an aver-age 54.5 in Q3 which was stronger than in Q2 (53.2) and Q1 (53.0). Second, a large boost to growth is expected to come from the revised OPEC agreement from end-June which should result in an increase of Saudi oil output by up to +0.5 million barrels per day in H2. Third, increased oil output combined with higher oil prices provide some leeway for continued fiscal stimulus. Euler Hermes forecasts full-year GDP growth of about +2% in 2018 and +2.5% in 2019.
