Saudi Arabia’s economy moved out of recession during the first two months of this year according to a report by Capital Economics.

The London-based firm says that the recovery has been driven by the oil sector, which has more than offset a modest slowdown in the non-oil sector. Year-on-year growth reached 1.5 per cent in February, up from 0.6 per cent in January and a contraction of 0.7 per cent during the whole of 2017.

The non-oil sector has been affected since the start of this year by an increase in inflation due to the imposition of a new value-added tax and an increase in prices. Point of sales transactions, which are an indicator for consumer spending, have slowed sharply.

Non-oil imports have also continued to decline in year-on-year terms, and the whole economy PMI, which covers the entire non-oil private sector, dropped to a fresh record low in March.

Capital Economics expects the slowdown in the non-oil sector to be temporary and is forecasting 1.5 per cent year-on-year growth this year. A raft of public sector bonuses should boost consumer spending, and, increased levels of public infrastructure spending, should support a gradual pick-up in growth in the non-oil sector over the coming months.

Speaking in Dubai on 2 May, the IMF said that Saudi Arabia must maintain the pace of economic reform in the kingdom after adjusting its economic targets last year.

Riyadh has since late 2017 set new economic targets and softened the pace of reform, most notably its 2019 target date for a balanced budget originally set out in Riyadh’s Fiscal balance Programme.