SA Kingdom's nonoil economy to grow 6% in 2013

Aug 01, 2013 12:00 AM

Saudi nonoil economy is predicted to grow by 6 percent in 2013-2014 compared to 7.1 percent in 2012, a banking report said.

The report, released by the National Bank of Kuwait (NBK) and carried by Al-Hayat newspaper, said investments in the industrial and housing sector will be the major growth drivers.

The NBK said it had revised its forecasts for Saudi nonoil GDP growth and said the Saudi economy has more momentum than previously thought in recent years and hit almost Chinese growth rates.

Real nonoil GDP growth averaged eight percent per year between 2005 and 2012 compared to five percent between 2005 and 2011. The growth was driven by the strength in the industrial and service sectors, with the private sector (nine percent per year) leading the way, the report said.

"Saudi Arabian oil output fell sharply by 0.7 million barrels per day (mbpd) to 9.3 mbpd in the 10 months to April 2013, as the Kingdom sought to support oil prices at close to 100," the report said.

The NBK said these cuts were slightly more rapid than they had expected and as a result, oil sector GDP is likely to be weaker than previously thought this year and that real oil GDP is expected to fall five percent. This will reduce the GDP growth by one percent to reach four percent in 2013 and five percent in 2014 and, therefore, Saudi oil output is expected to be broadly flat in 2014 rather than the small cut seen previously, the report said.

"Some indicators show that the pace of private nonoil activity may have eased a touch; ATM and point-of-sale figures, bank lending, and the purchasing managers' index are all off their highs. But they remain at solid levels," the report said.

The report said the slowdown could be linked to delays in project execution in the second half of 2012 and tighter project financing conditions. An easing of these problems, coupled with policy initiatives that support consumers (such as the mortgage law, and Nitaqat employment regulations) and continued fiscal stimulus will sustain growth going forward, the report said.

The report added that inflation has accelerated but remained at a moderate of 4 percent in April 2013 and much of the pick-up was driven by the food price component of the consumer price index (CPI). However, given stable international food prices, the report expressed doubt that this rise in domestic food prices has much further to run. Strong economic growth and wage pressures for nationals could invite a further rise in inflationary pressures, the report said. Inflation is predicted to average 4 percent in 2013-2014, it added.

"The budget surplus rose to 13.7 percent of GDP in 2012 on rising oil revenues and a modest six percent increase in government spending (following a much larger increase in 2011).

"Although the fiscal position should remain robust near-term, we think that the government may look to moderate spending growth in future with an eye on longer-term fiscal sustainability," the report said.

This could translate into a further modest six percent per year increase in spending in 2013 and 2014 " though still enough to finance notable hikes in capital spending. As oil revenues dip, the budget surplus could slip toward five percent of GDP over the next two years, the report said.

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