Saudi non-oil GDP in 8% per annum growth
Major revisions to GDP data reveal that the Saudi economy has grown much quicker than previously thought in recent years – at almost Chinese-style rates, said NBK in its latest GCC Brief.
Real non-oil GDP growth averaged eight per cent per year between 2005-2012 compared to the five per cent (2005-2011) reported before. Growth was driven by across-the-board strength in the industrial and service sectors, with the private sector (nine per cent per year) leading the way. Since the economy has more momentum than previously thought, NBK has revised up its forecasts for non-oil GDP growth for 2013 and 2014 from five per cent per year to six per cent (from 7.1 per cent in 2012), with growth driven by investment in housing and industry, alongside employment gains that benefit consumers.
“Saudi Arabian oil output fell sharply by 0.7 mbpd to 9.3 mbpd in the 10 months to April 2013, as the Kingdom sought to support oil prices at close to $100. These cuts were slightly more rapid than we had expected and as a result, oil sector GDP is likely to be weaker than previously thought this year: we now expect real oil GDP to fall five per cent. This will reduce GDP growth overall by one per cent - a smaller effect than under the previous set of GDP data where the oil sector had a larger weighting. After this year’s sizeable decline, we expect Saudi oil output to be broadly flat in 2014, rather than the small cut seen previously.
“Some indicators show that the pace of private non-oil activity may have eased a touch; ATM and point-of-sale figures, bank lending, and the purchasing managers’ index are all off their highs. But they remain at solid levels. The slowdown may be linked to apparent delays in project execution in 2H12, as well as slightly tighter project financing conditions. An easing of these problems, coupled with policy initiatives that support consumers (e.g. the mortgage law, and Nitaqat employment regulations) and continued fiscal stimulus will sustain growth going forward.
“Inflation has accelerated somewhat, but remained at a moderate 4.0 per cent in April 2013. Much of the pick-up was driven by the food price component of the CPI. But given stable international food prices, we doubt that this rise in domestic food prices has much further to run. Strong economic growth and wage pressures for nationals could invite a further rise in inflationary pressures. However, we assume that these forces will be offset by a drop in food price inflation and the impact of a stronger US dollar in checking import prices. Inflation is forecast to average 4.0 per cent in 2013 and 2014.
“The budget surplus rose to 13.7 per cent of GDP in 2012 on rising oil revenues and a modest six per cent increase in government spending (following a much larger increase in 2011). Although the fiscal position should remain robust near-term, we think that the government may look to moderate spending growth in future with an eye on longer-term fiscal sustainability. This could translate into a further modest six per cent per year increase in spending in 2013 and 2014 – though still enough to finance notable hikes in capital spending. As oil revenues dip, the budget surplus could slip towards five per cent of GDP over the next two years.”
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