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28 March 2024

Saudi economy to slow down in 2012

Published
By Staff

Saudi Arabia’s economy is projected to slow down and grow by around 3.9 per cent in 2012 as the Gulf Kingdom’s oil production will likely record only a slight rise, the country’s largest bank said on Saturday.

Growth this year will be far below the 6.8 per cent rise in 2011, when oil prices shot up by nearly 50 per cent and Riyadh’s oil output leaped by nearly one million barrels per day, National Commercial Bank (NCB) said.

In current prices, the country’s GDP crossed the 20 per cent threshold for the first time since 2008, expanding 28 per cent to SR2.16 trillion, thus, boosting per capita income to an estimated SR76,000, the highest on record, NCB said in a study sent to Emirates 24|7.

Meanwhile, real GDP grew by 6.8 per cent last year compared to 4.6 per cent in 2010, the report said, adding that the sharp expansion in nominal and real terms was driven by the surge in oil prices, higher crude production, robust domestic demand, and prudent macroeconomic policies.

It said the non-hydrocarbon private sector, in particular, was stimulated by the series of royal decrees announced in the first quarter of 2011, amounting to around SR400 billion in supplementary spending, with an estimated SR110 billion to have been spent in 2011.

“Going forward, We project real GDP growth of 3.9 per cent for 2012 due mainly to base effects, including the slower pace of increase in Saudi oil production, and the fading-out of one time transfers estimated at around SR94 billion, representing around 4.3 per cent of 2011's GDP,” it said.

“A tightly balanced global oil markets still remains our baseline scenario for the near term, which will ensure that oil prices remain high.”

The report showed that contribution of the oil sector to economic growth will remain positive, albeit modest compared to last year.

Even though the European sovereign debt crisis intensified in the second half of 2011, the geopolitical unrest that impacted the Middle East and continues to do so, supported the upside trajectory of crude, it said.

As a result, the Arabian light oil prices averaged $108/bbl in 2011, a 39 per cent increase over 2010 average levels.

Furthermore, the reported added, the war conflict in Libya that escalated in February 2011 enabled the Kingdom as a swing producer to increase its daily production to offset the shortage in supply, with Saudi oil output rising by 13.3 per cent in 2011 to an average 9.25 million bpd.

In 2012, Saudi Arabia continues to benefit from this ensuing positive oil price dynamics that propelled the benchmark Arabian light to a three year high of $127.5/bbl in March and to an average of around $118.5/bbl year to date.

On the production side, the Kingdom maintains elevated levels of production that have not been witnessed since 1980s due to various supply disruptions pertaining to non-OPEC members and Iran’s crude exports, NCB said.

“As mentioned earlier, the non-Iranian troubles, from the pipeline dispute between Sudan and South Sudan to outages in the North Sea, have knocked an nearly 700,000 bpd off global supply while the EU and US sanctions are expected to reduce Iranian exports by an additional 0.5-1 million bpd,” it said.

“In spearheading the first new output agreement since 2008 for OPEC countries back in December that increased the production quota from around 24.84 to 30 million bpd, Saudi Arabia had shown insistence to keep a leash on oil prices by maintaining current levels of production. Thus, we expect Saudi oil production to average 9.4 million bpd in 2012, yet marginally higher by 1.6 per cent than 2011's output.”

The report said that an average spot price of Arabian light, Saudi Arabia’s revenue could climb to their second highest level of SR1,006 billion.

It expected growth in the non-oil sector to ease due to high base effects in 2012, noting that real non-oil GDP in 2011 grew by around 7.8 per cent, which is higher than the 10-year average of 4.4 per cent, largely driven by the stellar performance of the non-oil private sector.

“The private sector maintained its significant contribution to real GDP at 49 per cent, growing by 8.3 per cent, which illustrates the vibrant role that private enterprises are assuming in the Saudi economy,” NCB said.

It said the main drivers of private sector growth were manufacturing, construction, and transportation and telecommunication sectors, which posted 15, 11.6 and 10.1 per cent annual growth, respectively.

“On the expenditure side, investment and consumption spending underpinned broader economic activities, rising by 18.5 and 10.7 from 3.7 and 8.1 per cent, respectively,” the report said.

“The sharp increase in investment was supported by the royal decrees, enhanced business confidence and the improved financing environment.”