Saudi GDP growth 'may fall to 3.8pc'
Rome, February 12, 2012
Saudi Arabia's economic growth is likely to fall to 3.8 per cent in 2012 from 5 per cent forecast earlier mainly due to expected drop in oil production, according to a new report.
The National Bank of Kuwait (NBK) in its 2012 forecast said the Kingdom's business environment, however, will remain strong, fuelled partly by continued fiscal expansion.
'Private sector indicators suggest a slowdown in activity in the second half of 2011, though some of this was likely due to temporary factors,' the report said.
A reshuffle of personnel in some key government economic posts in late 2011 may suggest a desire to breathe fresh life into economic reforms, it stated.
According to NBK, crude oil production surged by more than 1 million barrels per day (mbpd) to 9.8 mbpd between March and August, as the Kingdom moved to offset the loss of around 1.5 mbpd from fellow Opec member Libya.
As Libyan output recovers through 2012, some of these increases may be reversed, not least to rebuild Saudi’s cushion of spare production capacity to enable it to respond to future shocks (current spare capacity is 2-2.5 mbpd), the NBK said in its review.
But deep cuts from peak 2011 levels are unlikely, with global oil market fundamentals still tight. The net result could see real oil sector GDP broadly flat in 2012, it added.
The Kuwaiti bank also revised the non-oil GDP growth in 2011 slightly from 6 to 5 per cent. 'This reflects the impact of the weak global environment, plus a slightly smaller-than-expected impact from the government’s consumer-focused spending measures announced in early 2011,' the report added.
'Some of these may be felt in 2012, such as the new unemployment benefit worth $5 billion per year, which will be paid out from December 2011 and support the consumer sector, or the $67 billion multi-year house building program, which will support investment, it stated.
According to NBK, these domestic drivers of economic growth should buttress the Saudi economy against further economic shocks from overseas.
Inflation, the report said, was expected to remain steady in the 5 to 6 per cent range, after averaging 5 per cent in 2011.
The food price inflation had halved from 8 to 4 per cent in the year to November 2011 and has fallen well behind housing as the main contributor to inflationary pressures, it added.
NBK said it expected the inflation to start moderating by late 2012/13 in light of the government’s aggressive house building program.
While higher than historic norms, the authorities may be tolerant of 6 per cent inflation as the government prioritizes growth-oriented spending measures, the bank said in its report.
According to NBK, the Saudi government spending may have jumped by 23 per cent in 2011 on the back of an estimated $27 billion in early year supplementary spending.
However, this should have been more than covered by a 50 per cent increase in hydrocarbon revenues, largely due to rising oil prices, it added.-TradeArabia News Service