The Saudi Economy in 2012

A Saudi man counts out money. The Saudi oil sector is predicted to slow its growth this year.



Summary

A new report titled “Saudi Economy in 2012” forecasts slower growth, higher government spending, and smaller current account surpluses. Still, with the 2012 surplus forecast to be around 15 percent of GDP, the Kingdom’s finances are more than comfortable.

The complete report, including charts, graphs and tables can be viewed here.

Forecast highlights are:

Economic growth will decline to 3.1 percent in 2012, from 6.8 percent in 2011, attributable to an expected drop in oil demand. Total government expenditure is predicted to be 36 percent of GDP, compared to an average of 30.1 over the five years to 2008, and will add considerable stimulus to the economy. Non-oil private sector growth is forecast at 4.7 percent, although the trend varies across key sectors.

- Oil sector growth is predicted to slow in tandem with the global decline in demand. Accounting for 25 percent of the Kingdom’s economy, the slowing in the oil sector is the main reason why the Kingdom’s overall economic growth will slow.

- Manufacturing sector growth will also slow, despite the predicted increase in local demand for manufactured goods. Contributing factors include the slow down in the global economy, regional political uncertainty, and a predicted decline in oil refinery output.

- Construction is forecast to be the fastest growing sector in 2012, spurred on by the government’s plan to build 500,000 new housing and a reported additional $660 billion of planned or underway construction in the Kingdom.

- Electricity, gas and water sector growth is predicted to be faster than the 6.4 percent average of the past decade.

- The wholesale and retail sector is predicted to slump following the 40 percent rise in point of sale transactions in 2011. The rise is attributed to the two-month salary bonus paid to state employed last year, which the report anticipated will not to be repeated in 2012.

- Telecoms and transport sector growth will slow as the market reaches the limits of demand. In 2011 market penetration reached 1.98 phones per person and new subscriptions increased by only 8.7 percent, compared with 30 percent during the previous 5 years.

- Finance sector growth will be sluggish. Insurance, bank lending and profits should rise, but investors will be cautious, with little improvement in the stock market and a slim flow of deals likely.

Inflation

Inflation is expected to fall to 4.4 percent owing to an easing of price pressures from outside of the Kingdom, although there will be some local inflationary pressure owing to the high level of consumer and government spending. Domestic policies staved off the greatest impacts of global food inflation in 2011. Increased domestic disposable incomes contributed to making rents a main source of inflation in the Kingdom in recent years, and high consumer spending, double-digit money supply growth, rising bank lending and exceptionally low interest rates will lift inflation.

Current Account

The current account surplus in 2012 is forecast to decline to 14.9 percent of GDP from 27.6 percent because of lower oil export revenues (85-90 percent of total export revenue). Import growth is expected to pick up as implementation of the housing construction and other government infrastructure programs lifts demand for construction raw materials and machinery. High consumer spending will boost imports of household goods, vehicles and electronics. Remittances of foreign workers will remain the main source of outflows from the invisibles accounts, and will approach $30 billion in 2012.

The report also forecasts economic performance with regards to fiscal policy, monetary policy, and exchange rates, and summarizes the outlook for 2013.

The complete report, including charts, graphs and tables can be viewed here.


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