Saudi GDP to record highest growth in 8 years

Saudi Arabia’s real GDP is projected to swell by nearly 6.9 per cent this year to record its highest growth rate in eight years as a result of a surge in its oil production and public spending, a key Saudi bank has said.

Actual public expenditure could leap by a third in 2011 to record its highest increase since 2000 as the Gulf Kingdom lavishes funds within an enormous public financial incentive announced by King Abdullah early this year, Saudi American Bank Group (SAMBA) said in its monthly economic bulletin.

“Saudi Arabia is set for the strongest rate of economic growth since 2003, driven by double digit growth in crude oil output and sizeable gains in government spending,” said the study, which was released this week.

It projected non-oil sector growth at over five per cent while the hydrocarbon sector could record double digit growth due higher output and prices.

The report showed the oil sector has expanded at an exceptional rate so far this year, and its contribution to GDP is likely to grow by over 11 percent in real terms, the highest growth rate since 2003.

“The main driver has been crude oil production, which has been ramped up in response to the outage of Libyan crude. Average crude oil production was running at 9.2 million barrels per day in the first nine months of 2011, around 12 percent higher than the corresponding period of 2010,” SAMBA said.

“Production appears to have peaked in the summer at around 9.9 million bpd, and most analysts see Saudi output easing back in the remaining months of the year as Libyan crude is ramped up, albeit slowly and haphazardly.”

The report expected growth to slow to about 4.1 percent in 2012-2013, as oil production eases and the pace of government spending moderates somewhat.

In current prices, Saudi Arabia’s economy, the largest in the Arab world, is forecast to soar by 29.2 per cent to $557 billion in 2011 from $431 billion in 2010. SAMBA expected GDP to slim to around $544 billion in 2012 before sharply rebounding to nearly $587 billion due to an expected rise in crude prices.

Higher oil exports will also allow Saudi Arabia, which sits atop more than a fifth of the world’s proven crude deposits, to record a much higher current account surplus at 24.4 per cent of GDP in 2011 compared to 15.7 per cent in 2010.

It also projected the budgeted deficit to turn into a surplus of 13.1 per cent of GDP in 2011 against 5.4 per cent in 2010 and a deficit in 2009.

SAMBA said the fiscal surplus would widen this year despite a massive rise in spending by the government, buoyed by high oil prices and production as well as a sharp increase in the country’s foreign assets.

“We believe that the authorities will spend around a third of the estimated SR459 billion package announced by King Abdullah early this year. At around SR140 billion this is still a sizeable addition to outlays, and should boost overall spending this year by around 23 percent to some 40 percent of GDP,” it said.

“The surge in spending this year is by any measure exceptional, and represents the largest annual increase since 2000 (which followed two years of spending contraction). The economy would probably find it difficult to digest a further increase in 2012, and we think spending will contract slightly next year.”

The report showed fiscal and current account surpluses boosted Saudi Arabia’s net foreign assets from around $435.6 billion at the end of 2009 to $466.6 billion at the end of 2010. It expected them to rocket to $602.6 billion at the end of this year and continue their rise to reach $679.6 billion at the end of 2012 and a record high of nearly $739.8 billion at the end of 2013.

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