Saudi Arabia records solid economic performances. Growth is strong, mainly in the non-oil sector. The government is in a comfortable financial position, but its vulnerability to oil prices is growing. This could cause problems in the long term. Despite this upbeat situation, the Saudis must still come to grips with unemployment. The government has set up an active, interventionist policy, but the results are uncertain without the development of economic sectors serving as veritable sources of job creation.
Favourable growth prospects
Since 2010, Saudi Arabia has benefited from buoyant economic growth (7.5% on average) fuelled by public and private domestic demand and to a lesser extent by the oil sector (+5% in 2012). Public expenditure is still a powerful growth engine despite a slowdown in spending as of 2012 (up 3.2% in nominal terms, vs. 27% in 2011). Looking beyond redistribution measures (job creations and public sector wage increases), there was a big increase in public investment in social welfare (housing) and infrastructure (notably transport), which grew at a faster pace than current spending. This expansionist budget policy has naturally had a big impact on private demand. Greater purchasing power (most Saudis work in the public sector) and the rapid growth of lending (+16% in 2012) are fuelling household consumption.
From a sector perspective, industrial growth is strong, mainly in the downstream oil sectors (refining, petrochemicals). Construction is buoyed by public investment projects. Growth prospects are still very positive, even though we expect a slight slowdown, to 5% in 2013 from 7% in 2012. The PMI index for June 2013 confirmed the downtick that began in March (to 56.6 from 58.9), but the index is still well above 50, the threshold that indicates economic expansion. Oil production (about 20% of GDP) could decline slightly in 2013 given the mixed outlook for world economic growth and increased oil production in the United States and Iraq. In contrast, all of the non-oil components of GDP should continue to grow, especially the real estate sector with the introduction of mortgage loans for individuals in 2012.
■ Limited risks
At a time of rising budget expenditures, oil prices have held at high levels, generating record budget surpluses in recent years (about 12% of GDP in 2011 and 2012). Even if there were an abrupt, long-lasting downturn in oil prices, the Saudi government’s solvency would not be at risk. Public debt is negligible at 3.5% of GDP in 2012 while it has considerable public external assets. The central bank’s foreign reserves reached $664bn at end 2012, while government deposits with the central bank amounted to $405bn (56% of GDP) at end 2012.
BY Pascal DEVAUX
To Read the Entire Report Please Click on the pdf File Below.
Favourable growth prospects
Since 2010, Saudi Arabia has benefited from buoyant economic growth (7.5% on average) fuelled by public and private domestic demand and to a lesser extent by the oil sector (+5% in 2012). Public expenditure is still a powerful growth engine despite a slowdown in spending as of 2012 (up 3.2% in nominal terms, vs. 27% in 2011). Looking beyond redistribution measures (job creations and public sector wage increases), there was a big increase in public investment in social welfare (housing) and infrastructure (notably transport), which grew at a faster pace than current spending. This expansionist budget policy has naturally had a big impact on private demand. Greater purchasing power (most Saudis work in the public sector) and the rapid growth of lending (+16% in 2012) are fuelling household consumption.
From a sector perspective, industrial growth is strong, mainly in the downstream oil sectors (refining, petrochemicals). Construction is buoyed by public investment projects. Growth prospects are still very positive, even though we expect a slight slowdown, to 5% in 2013 from 7% in 2012. The PMI index for June 2013 confirmed the downtick that began in March (to 56.6 from 58.9), but the index is still well above 50, the threshold that indicates economic expansion. Oil production (about 20% of GDP) could decline slightly in 2013 given the mixed outlook for world economic growth and increased oil production in the United States and Iraq. In contrast, all of the non-oil components of GDP should continue to grow, especially the real estate sector with the introduction of mortgage loans for individuals in 2012.
■ Limited risks
At a time of rising budget expenditures, oil prices have held at high levels, generating record budget surpluses in recent years (about 12% of GDP in 2011 and 2012). Even if there were an abrupt, long-lasting downturn in oil prices, the Saudi government’s solvency would not be at risk. Public debt is negligible at 3.5% of GDP in 2012 while it has considerable public external assets. The central bank’s foreign reserves reached $664bn at end 2012, while government deposits with the central bank amounted to $405bn (56% of GDP) at end 2012.
BY Pascal DEVAUX
To Read the Entire Report Please Click on the pdf File Below.