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Saudi Arabia Business Forecast Report Q3 2013

Saudi Arabia Business Forecast Report Q3 2013 - new country guide report published

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2014-02-19 08:35:01 - Saudi Arabia Business Forecast Report Q3 2013 - a new country guide report on

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, high 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 2012 to 10.7% 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 SAR261.9bn (US$69.8bn, equivalent to 9.7% of GDP).

Saudi Arabia´s non-hydrocarbon sector will continue to drive overall economic growth over the next few quarters, helping to balance an ongoing decline in oil production. Business activity in the private sector remains supported by the government´s loose fiscal policy stance, easy credit conditions, and robust consumer confidence. We forecast real GDP growth of 4.1% this year, accelerating to 4.6% in 2014 on the back of a slight rebound in oil exports.

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.The price of this market report covers 4 quarterly reports on this sector. This quarterly report will be downloadable instantly as a PDF document, with the 3 remaining reports delivered at regular intervals throughout the year.

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Mike King
Phone: London: +44 (0) 203 086 8600

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