Lower oil output to slash Saudi growth
An expected decline in its oil production will likely slash Saudi Arabia’s real GDP growth in 2012 but its budget will remain in surplus for the third year running, according to a key Kuwaiti bank.
Saudi Arabia, the largest Arab economy, saw an estimated 6.6 per cent real GDP growth in 2011 and the level could dip to nearly 3.8 per cent, National Bank of Kuwait said in a study.
“Our forecast for Saudi real GDP growth in 2012 has been revised down from around five per cent to 3.8 per cent, though this is entirely due to revised assumptions about oil production,” the study said.
“The business environment is expected to remain strong, fuelled partly by continued fiscal expansion…. private sector indicators suggest a slowdown in activity in the second half of 2011, though some of this was likely due to temporary factors….a reshuffle of personnel in some key government economic posts in late 2011 may suggest a desire to breathe fresh life into economic reforms that have stalled in recent years.”
NBK said Riyadh’s oil output surged by more than one million barrels per day (mbpd) to 9.8 mbpd between March and August, as the Kingdom moved to offset the loss of around 1.5 mbpd from fellow OPEC member Libya.
As Libyan output recovers through 2012, some of these increases may be reversed, not least to rebuild Saudi’s cushion of spare production capacity to enable it to respond to future shocks, it said.
But it ruled out deep cuts from peak 2011 levels on the grounds global oil market fundamentals are still tight. The net result could see real oil sector’s GDP broadly flat in 2012, the study said.
NBK said it slightly revised down non-oil GDP growth in 2011 from six to five per cent, adding that this reflects the impact of the weak global environment, plus a slightly smaller-than-expected effect from the government’s consumer-focused spending measures announced in early 2011.
Some of these effects may be felt in 2012, such as the new unemployment benefit worth $five billion per year, which was to be paid out from December 2011 and support the consumer sector, or the $67 billion multi-year house building program, which will bolster investment.
“These domestic drivers of economic growth should buttress the Saudi economy against further economic shocks from overseas.”
As for the budget, NBK noted that actual public spending may have jumped by nearly 23 per cent in 2011 on the back of an estimated $27 billion in early year supplementary spending.
However, this should have been more than covered by a 50 per cent increase in oil revenues, largely due to rising oil prices, it said, adding that the budget surplus may have risen to 14 per cent of GDP, from five per cent in 2010.
“Because of the multi-year nature of the commitments, spending may not decline much in 2012. With oil prices more or less unchanged, we see the budget registering a similar 14 per cent of GDP surplus next year,” it said.
“Similarly, strong oil revenues should generate further huge current account surpluses of 20-25 per cent of GDP in 2011 and 2012.”
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