There is a genuine debate going on about Saudi Arabia’s economic prospects this year, but the momentum is with the upside. That is the message from recent research based on the latest economic and financial data. It is a crucial time for the Kingdom, with the first full year of the National Transformation Program (NTP) 2020 well underway and the oil price strategy apparently delivering the goods. How it goes in the next few months will to a large degree determine whether the economic transformation forges ahead full steam or whether it will be constrained and modified by economic circumstances. Just over the past week, there have been conflicting assessments delivered by various authoritative bodies. On the one hand, data for January from the Saudi Arabian Monetary Agency (SAMA) showed that credit provision by banks to private sector businesses has remained subdued, after very weak growth in 2016. This is obviously a negative indicator. Companies need credit to expand and invest, and consumers need it to fund purchases. Weak credit markets could add to deflationary pressures – the last thing policymakers need as they seek to increase the proportion of gross domestic product (GDP) coming from the non-oil sector. But to claim, as one report did, that this shows “the economy struggling as lending growth slumps,” is stretching it too far. The SAMA figures were essentially a snapshot of the financial position in January and do not amount to an economic forecast. Financial statistics only go so far in telling you about the real economy. To get the full picture, you need to cast the statistical net wider. Spurt in non-oil activity: Capital Economics (CapEcon), the London-based consultancy that has a reputation for comprehensive economic research and for “telling it like it is,” has been doing some serious number crunching in recent weeks. First it did a detailed study of the purchasing managers’ index (PMI) figures for the first month, then a study on the prospects for a deflationary dip in the Kingdom. Both were actually rather positive for the economic outlook this year. The PMIs were the best for some time, indicating a spurt in non-oil activity and there is only a very small chance of full-scale deflation and recession later this year. Now CapEcon has followed with another update, building on the first two. Because Saudi GDP figures are quite slow in being released – data for the fourth quarter of 2016 will not be out until later this month – CapEcon calculates its own GDP “tracker.” This tells a rather different story than the reports based on the SAMA figures. “The Saudi economy strengthened in the fourth quarter as the drag from fiscal austerity eased,” said CapEcon’s Middle East economist Jason Tuvey. True, headline GDP will slow in the first half as oil production cuts continue to have an effect. “But we think the consensus and the International Monetary Fund (IMF) are now overly pessimistic on growth over 2017 as a whole,” Tuvey said. IMF way off course: In January, the IMF slashed its forecast for Saudi growth to a meager 0.4 percent in 2017, from an earlier prediction of 2 percent. But once again, it looks as though the perpetual pessimists at the IMF are way off course. The “tracker” suggests growth at around 3.5 percent in November and December, a big leap from the 1.5 percent estimated for the first nine months. Oil growth was robust at higher prices, while the non-oil economy recovered from a slump last winter, CapEcon says. This non-oil bounce-back is set to continue this year. The December budget suggests that the period of austerity in the wake of the oil-price crash is over and there has been an upturn in new construction contracts as some bills are finally being paid. It is not all undiluted good news, CapEcon recognizes. Credit conditions can only remain subdued if the US Federal Reserve’s program of increasing interest rates is maintained this year, as most experts predict. This will have a knock-on effect for consumer spending and cash in the economy via ATM withdrawals. The oil price, of course, remains the crucial variable. Saudi Arabia actually cut more than it was obliged to under the Organization of the Petroleum Exporting Countries’ (OPEC) agreement last November, so there is some leeway it could use there. There is also the option to extend the cuts until the end of the year, decreasing production but maintaining prices. All in all, CapEcon thinks the Saudi GDP will grow by 1 percent this year, significantly better than the IMF forecast or the economists’ overall consensus of 0.5 percent. In the circumstances, that represents a “glass half full” for Saudi policymakers as they advance plans for the Kingdom’s ongoing economic transformation.