The Saudi Arabian economy should register a healthy growth rate of 3.9 percent in 2010 and post a budget surplus of SR40 billion “against a budgeted deficit of SR70 billion,” Al Rajhi Capital said in its “Economics Monthly” report for September released Saturday. It also expects inflation in the Kingdom to decline moderately to 5.5 percent at the end of the year from the current 6 percent. The report noted that robust economic growth from the developing markets is expected to continue, albeit at “slightly moderating levels in the months ahead.” It underscored that with the strong economic fundamentals in Saudi Arabia, the impact of a global slowdown is likely to be limited. Notwithstanding the recent headwinds from developed markets, the Saudi Arabian economy has gained traction, the report added. The positive outlook is supported by robust non-oil export growth and bank credit levels, which have slowly been inching up, the report said, noting that “despite global stock markets remaining under pressure in the near term, emerging economies will be less affected.” The report also saw a growth in the non-oil private and government sectors to accelerate to 4.4 percent and 4.6 percent respectively in 2010. And driven by rising crude production, it expects the oil sector to grow at 2.5 percent this year as against a 6.7 percent contraction last year. The Kingdom's foreign reserve assets increased to SR1581.3 billion in July compared to SR1573.3 billion in June, largely due to increase in foreign currency holding and deposits abroad. The total assets increased 9 percent in July from the same month last year. The rise in foreign assets of the central bank reflects improving external sector balance of the country. Recovery in export and robust capital inflows further boost the external balance which will translate into higher foreign assets going forward. Al Rajhi Capital said in the report. However, the report pointed out that slower credit growth and provisioning continues to take its toll on profitability of banking sector in the Kingdom. The aggregate profit declined by 12.1 percent in the first seven months of 2010 compared to the same period last year. However, the encouraging news is that decline in profit has been decelerating. As growth picks up and risk aversion diminishes, commercial banks lending to private sector in Saudi Arabia is on revival mode. The loans and advances and overdraft to private sector accelerated to 3.5 percent year-on-year in July compared to 3.1 percent year-on-year in June. The total claims on the private sector increased by 4.9 percent year-on-year in July in comparison to 4.4 percent year-on-year in June. However, banks claims on government sector continues to contract as it declined by 1.5 percent year-on-year in July on the back of 8.8 percent year-on-year decline in June. The increase in bank credit has been mainly for medium and long term maturity as short maturity credits have been declining. The short term maturity credit declined by 1.8 percent year-on-year whereas medium and long term maturity credit increased by 8.8 percent year-on-year and 12.2 percent year-on-year respectively in July. On the other hand, deposit growth continues to lag behind credit growth as the former decelerated to 1.8 percent year-on-year in July from 2.9 percent year-on-year in June. The slow growth in deposit is mainly on account of sharp decline in time and savings deposit which fell by 16.6 percent year-on-year in July. However, robust growth in demand deposit at 23.3 percent year-on-year in July mitigated the impact on overall deposit growth. The rest of GCC economies showed mixed results, it added. The report highlighted as significant the recent downgrading of Bahrain's sovereign debt ratings by Moody's to A3 from A2 due to a high fiscal deficit and a rising breakeven oil price for balancing the budget. In Qatar, the central bank reduced overnight deposit rates to 1.5 percent from 2 percent. In Oman, the government budget surplus surged to OMR725 million in H1 2010. Interbank interest rates in the UAE remain at an elevated level whereas inflation decelerated in July. Inflation came down to 0.86 percent year-on-year in July largely due to falling rents. In Kuwait, the Cabinet of Ministers has allowed banks to finance a massive proposed development project set to transform the Kuwait economy into a new business hub. The report further noted that robust economic growth from the developing markets is expected to continue, albeit at slightly moderating levels in the months ahead.
