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Saudi Arabia Business Forecast Report Q2 2013

Saudi Arabia Business Forecast Report Q2 2013 - new country guide report published

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2014-03-10 11:39:02 - Saudi Arabia Business Forecast Report Q2 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, 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 Arabias 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).

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 Arabias 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.

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Mike King
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