JEDDAH – Saudi Arabia's non-oil GDP growth is expected to moderate to six percent during 2013 from a break-neck rates of eight percent per year between 2005 and 2012, the latest GCC Brief released by the National Bank of Kuwait (NBK) noted. The Saudi economy has grown at a much higher rate than previously thought and has therefore revised its forecasts for the country's non-oil GDP growth for 2013 and 2014 from five percent per year to six percent from 7.1 percent in 2012, the report added. The growth will be driven by investment in housing and industry, alongside employment gains that benefit consumers, the report pointed out. Real non-oil GDP growth averaged eight percent per year between 2005 and 2012, compared to the five percent (2005-2011) reported earlier, NBK said. Growth was driven by across-the-board strength in the industrial and service sectors, with the private sector (nine percent per year) leading the way. According to the NBK, oil sector GDP is likely to be weaker than previously thought this year, with real oil GDP expected to fall five percent, thus reducing GDP growth overall by one percent. This is due to the fact that Saudi Arabia's 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. After this year's sizeable decline, the NBK expects Saudi oil output to be broadly flat in 2014, rather than the small cut seen previously. Some indicators show that the pace of private non-oil activity may have eased a touch, the bank added, saying that the slowdown may be linked to apparent delays in project execution in 2H12, as well as slightly tighter project financing conditions. An easing of these problems, coupled with policy initiatives that support consumers (for example, the mortgage law, and Nitaqat employment regulations) and continued fiscal stimulus will sustain growth going forward, according to the NBK. “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. 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 towards five percent of GDP over the next two years,” the bank further said. “Some indicators show that the pace of private non-oil 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 slowdown may be linked to apparent delays in project execution in 2H12, as well as slightly tighter project financing conditions. An easing of these problems, coupled with policy initiatives that support consumers (e.g. the mortgage law, and Nitaqat employment regulations) and continued fiscal stimulus will sustain growth going forward. “Inflation has accelerated somewhat, but remained at a moderate 4.0 percent in April 2013. Much of the pick-up was driven by the food price component of the CPI. But given stable international food prices, we 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. However, we assume that these forces will be offset by a drop in food price inflation and the impact of a stronger US dollar in checking import prices. Inflation is forecast to average 4.0 percent in 2013 and 2014. “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. 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 towards five percent of GDP over the next two years.” — SG
