KSA to outperform emerging states

Strong oil prices will ally with a surge in Saudi Arabia’s crude output to boost its economy by nearly 6.6 per cent in 2011 and allow it to outperform most other emerging markets, a key Saudi bank has said.

Growth in 2011, which has sharply been revised up by many local banking institutions, could be nearly double the rate recorded in 2010 and one of the highest levels over the past two decades.

Despite a massive increase in public spending, another key factor in the projected high growth this year, Saudi Arabia’s net foreign assets are expected to leap by nearly $91 billion while its current account and fiscal balance will record higher surpluses, the Saudi American Bank Group (Samba) said.

But it noted that various data in the Gulf Kingdom suggest a modest slowing in the pace of domestic economic activity in the past few months, as the impact of salary adjustments made earlier in the year fades and project activity cools.

“Looking ahead, lower oil prices and a weaker external environment might keep a lid on private investment growth in the second half, though the country’s fundamental strengths remain unimpaired, and the economy is likely to outperform most emerging markets this year,” it said.

“Lower oil prices are also likely to have some impact on broader domestic investment among private firms. This is largely psychological-- if firms think that lower oil prices will oblige some retrenchment in government spending (even if not the case) then they might trim their own investment plans.”

Samba, releasing its quarterly report on Saudi economy, said regional political concerns, which have yet to become “normalised” in the minds of most investors, will also continue to have some influence, albeit a diminishing one.

“Overall therefore, we think that the pace of private activity—both investment and consumption—is set to slow somewhat in the second half of this year,” it said. “But this slowdown is off a high base, and overall non-oil growth this year is still set to push 5.5 per cent—extremely brisk in historical and regional terms. Indeed, the overall rate of GDP growth is likely to be higher than previously anticipated given stronger-than-predicted crude oil output in the first half of 2011.”

The report showed real GDP growth would sharply rebound from 3.8 per cent in 2010 to 6.6 per cent in 2011 before sliding to around 3.9 per cent in 2012.

Nominal GDP is projected to jump by nearly 21.2 per cent to $524 billion in 2011 from about $432bn in 2010. Growth will slow down to around 5.7 per cent to nearly $554bn in 2012, the report showed. Despite higher growth in 2011, inflation is expected to slip to around 5.2 per cent in 2011 from 5.4 per cent in 2010 before rising to 6.2 per cent in 2012.

The report showed high oil prices, which have remained above $100 over the past few months, would widen Saudi Arabia’s current account surplus to 17.4 per cent of GDP in 2011 from about 15.6 per cent in 2010. The fiscal balance, budgeted at a deficit of SR40bn, is forecast to turn into a surplus of 10.3 per cent of GDP in 2011 compared with 6.7 per cent in 2010.

The report showed Saudi Arabia’s net foreign assets, which have nearly tripled over the past six years, would soar to a new record high of about $557bn at the end of 2011 from nearly $466bn at the end of 2010. It expected them to climb further to an all time high of $632bn at the end of 2012 and hit another record of $702bn at the end of 2013.

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