2013-03-11 12:20:21 - New Country Reports market report from Business Monitor International: "Saudi Arabia Business Forecast Report Q2 2013"

Core Views

Continued heavy spending on the part of the government indicates its ongoing concerns about the need to shore up its key bases of support, given the persistent threat of public unrest. While we maintain that large-scale protests are unlikely to occur in Saudi Arabia, large youth unemployment coupled with a lack of political liberties mean that tensions will continue to linger.

Although balance of payments stability in Saudi Arabia is unlikely to come under any pressure in the foreseeable future, we expect the current account surplus to shrink substantially in the years ahead, falling from 23.7% of GDP in 2011 to 7.8% of GDP by 2016.

Saudi Arabia's recently approved 2013 budget continues the strong trend of expansionary fiscal policy that

has been seen in recent years, with government spending set to continue underpinning economic growth. However, with both global oil prices and domestic hydrocarbon production expected to trend downward, we project the 2013 fiscal surplus to be lower than in previous years, at SAR261bn (US$69bn, equivalent to 10.1% of GDP).


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Major Forecast Revisions

We expect Saudi Arabia to remain on a solid growth path through 2013, as the non-oil sector continues to expand on the back of booming household expenditure and another strongly expansionary budget from the government. However, a projected fall in oil production should prove a net drag on economic performance, and we do not see the Saudi economy reaching the growth rates of previous years. We forecast real GDP growth of 4.1% in 2013, down from our previous forecast of 4.5%, and from growth of 6.8% in 2012.

Key Risks To Outlook

A sharper-than-expected downturn in the global economy, if it was to translate into a substantial decline in oil prices, would pose significant downside risks to our forecasts for Saudi Arabia's fiscal and current account position, though it remains highly unlikely that either account will fall into the red in the near term.

We expect inflation to remain broadly subdued in 2013, on the back of declining rental costs and government subsidisation of food and fuel. However, we highlight that a prolonged period of robust growth, coupled with loose fiscal and monetary policy, poses a medium-term inflation risk, and could begin to spur more rapid price rises this year.

Partial Table of Contents:

Executive Summary
Core Views
Major Forecast Revisions
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Passing The Mantle
- Recent leadership changes at the top echelons of government in Saudi Arabia suggest that the reins of power are increasingly shifting towards a younger generation. However, the February 1 appointment of 69-year old Prince Muqrin bin Abdulaziz as second deputy prime minister - a position that has traditionally made the incumbent second in line to the throne, but does not guarantee his ascension - is unlikely to fully resolve the issue of succession.
TABLE: MEMBERS OF THE 'SUDAIRI SEVEN'
TABLE: RECENT LEADERSHIP CHANGES
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Scenarios For The Coming Decade
- The Saudi royal family depends on steady oil revenues to maintain its tight grip on the population. As a result, a sustained downturn in global oil demand could lead to substantial unrest and, potentially, regime change over the long term.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Non-Oil Sector To Drive Growth
- We expect Saudi Arabia to remain on a solid growth path through 2013, as the non-oil sector continues to expand on the back of booming household expenditure and another strongly expansionary budget from the government..
TABLE: ECONOMIC ACTIVITY
Balance Of Payments
Reduced Surplus In 2013
- We project Saudi Arabia's current account surplus to narrow to 13.8 % of GDP in 2013 (down from our previous forecast of 17. 2%), compared to an estimated 19.5 % in 2012. Hydrocarbon export revenues are set to trend lower as a result of falling prices and lower output, while we expect imports to remain high in response to growing household consumption and a booming construction sector.
TABLE: CURRENT ACCOUNT
Fiscal Policy
Budget: Another Expansionary Year
- Saudi Arabia's recently approved 2013 budget continues the strong trend of expansionary fiscal policy that has been seen in recent years, with government spending set to continue underpinning economic growth.
TABLE: FISCAL POLICY
TABLE: FISCAL POSITION, 2012 AND 2013
Monetary Policy
Inflation To Stay Stable
- Inflationary pressures in Saudi Arabia should remain subdued through 2013. Government subsidies will offset the impact of higher food import prices, and we expect rental costs to continue their multiyear decline. We forecast inflation to average 4.5% this year (down from our previous forecast of 5.0%), while the Central Bank's benchmark interest rate is likely to stay at 2.00% over the near term. 22
TABLE: COMPOSITION OF 2013 BUDGET
TABLE: MONETARY POLICY
Regional: Sovereign Risk Ratings
The Calm Before The Storm?
TABLE: MENA - EVOLUTION OF ABILITY TO PAY
TABLE: MENA - EVOLUTION OF WILLINGNESS TO PAY
Regional Banking Sector
Islamic Finance: Politics Undermining Growth Potential
Chapter 3: 10-Year Forecast
The Saudi Arabian Economy To 2022
Politics Main Risk To Long-Term Outlook
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