Saudi growth highest since 2003

Saudi Arabia’s economy grew by around 3.8 per cent in real terms in 2010 and is expected to sharply pick up by nearly 6.5 per cent this year because of higher oil output and public spending, a key Saudi bank said on Thursday.

The world’s top oil exporter and largest Arab economy is expected to overshoot its budgeted expenditure by more than a third in 2011, tempted by a surge in crude prices and its foreign assets, the Saudi American Bank (Samba) said.

“We think real growth will reach 6.5 percent this year, the highest level since 2003, and comparable to the rates seen in the most dynamic emerging markets,” Samba said in its semi annual report on the Saudi economy.

“Next year we expect some moderation in growth to four percent. However, this largely reflects the levelling off of crude oil output. The non-oil sector should continue to thrive, growing by 5.2 percent (down from 5.4 percent in 2011).”

The report expected a growth recovery to 4.5 percent 2013 as the non-oil sector continues its five percent-plus rate of expansion and oil output edges up.

GDP per capita is projected to reach around $18,300 this year, climbing to $19,300 by 2013, nearly double its level less than 10 years ago.

Samba said the oil sector would provide the government with a solid platform for a year of exceptional fiscal stimulus and allow it to spend more.

“We were already anticipating a year of firm government spending even before King Abdullah’s announcements in February and March of an additional combined SR460 billion of spending or 24 percent of our forecast for GDP. “

The study noted that some of the elements in the spending package, including the construction of 500,000 houses at a cost of SR250 billion, would take years to fully roll out. But other features, such as the two months’ additional salary for public sector workers, have already been disbursed.

“Consequently, we think that around SR195 billion of the pledge will be spent this year. This will push total spending up to a colossal SR840 billion in 2011 (43 percent of GDP) or more than a third higher than the previous year (in fact, more than twice the level recorded as recently as 2006),” it said.

“It seems likely that spending will edge down next year-the economy would find it difficult to digest another increase after such a surge in 2011-but it will remain high in historical terms at around 39 percent of GDP.”

Samba said it believes spending has shifted up a gear and is likely to stay in a rough 40-45 percent of GDP range, up from 30-35 percent in the previous decade. It said drivers of this shift include high population growth, urbanization, rapidly evolving industrialization, and political considerations.

“This spending can be accommodated by substantial oil surpluses, but dependence on oil revenue is increasing, not lessening.”

Turning to oil, the report put the Gulf Kingdom’s production at an average 8.8 million barrels per day in the first half of 2011 compared with 8.3 million bpd in the first half of 2010. It expected output to increase further over the next few months, peaking at around 9.5 million bpd, before easing in the final quarter.

This will give average output of just over nine million bpd, some nine percent higher than 2010. Average output in 2012 is likely to increase only slightly (given the high level of stocks) before picking up at a moderate pace in 2013.

“Saudi Arabia might be somewhat less concerned than previously about the impact of changes in its crude output levels thanks to significant gains in output of natural gas liquids (NGLs),” the study said.

“These NGLs, which are sold at a premium, can be produced with impunity as they fall outside the OPEC regime….Saudi NGL output is likely to reach 1.7 million bpd in 2011, an eight percent gain on 2010.”

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