Saudi Arabia is the largest economy in the Middle East. The Kingdom remains the world's largest producer of crude oil (14% of world production), and is the only country with significant spare production capacity. Economic growth has been strong in recent years, driven by a large increase in crude oil production and strong private sector economic activity. We expect nonhydrocarbon real growth to remain strong (at about 6%) in 2013 as continued high government spending and rapid growth in population will support private consumption. Crude oil production is projected to decline from an average of 9.8 mbd in 2012 to 9.6 mbd in 2013 given that the global oil market is well supplied following the recent rapid gains in oil production from North America and Iraq.
Monetary policy is expected to remain accommodative given the Saudi riyal peg to the U.S. dollar, which will continue to keep interest rates negative in real terms. Inflationary pressures are limited; the average inflation will remain around 4% in 2013. The growth private sector credit, year-on-year, has accelerated in the past two years to 15% in 2012. The banking system as a whole remains well capitalized, highly liquid and seems to be withstanding severe temporary shocks, but it could be vulnerable to a large and prolonged oil price decline.
Both the current account and fiscal surpluses, while narrowing slightly this year due to lower exports of crude oil in volume terms, are expected to remain large at $160 billion and 11% of GDP, respectively. As a result, net foreign assets managed by the Saudi Arabian Monetary Agency (SAMA) are projected to increase further to $750 billion by end-2013, equivalent to 106% of GDP. From 2003-2012, government spending has risen by an average annual rate of 14%. Such a large increase in spending has on average dominated the small increase in exports of crude oil in volume terms. Consequently, the fiscal breakeven oil prices (that would balance the budget) have risen significantly in recent years to about $83/barrel in 2013.
Saudi Arabia Publications
June 17, 2013
Nonhydrocarbon growth is expected to remain robust. The increased total factor productivity in recent years reflected the efficiency gains from the implementation of structural reforms. Inflationary pressures are expected to remain limited. The external and fiscal surpluses will remain large. Fiscal breakeven Brent oil price will rise from $78/b in 2012 to $84/b in 2013.Read More
September 25, 2012
Saudi Arabia will continue to experience large current account and budget surpluses as oil prices remain high, adding to its sizeable foreign assets. Real GDP growth is expected to moderate from 7.1% in 2011 to 5.4% in 2012 and inflationary pressures have eased.
Authorities indicate willingness to sustain oil production near a peak of 10 mbd to help reduce upward pressure on prices due to concerns about the impact of high oil prices on the global economy.Read More
May 07, 2012
Growth is expected to moderate from 6.4% in 2011 to 5% in 2012. Continued firm oil prices will widen the current account and fiscal surpluses, and raise net external assets to $756 billion by end-2012. The fiscal breakeven oil price is expected to decline from $82/b in 2011 to $77/b in 2012. High unemployment among nationals continues to pose a challenge.Read More
September 08, 2011
Growth is expected to accelerate to 5.8% in 2011, driven by public spending and oil production. Inflationary pressures persist, but may subside beyond end-2011. Large fiscal and current account surpluses have pushed foreign assets to over the half trillion mark. The breakeven price of Brent oil that balances the budget is expected to rise from $85/b in 2011 to $90/b in 2012.Read More
March 30, 2011
Large increase in public social spending, largely in the form of new social benefits, may help the Kingdom avoid unrest in the short term. The fiscal balance will remain in surplus of 6.7% of GDP and the external current account surplus will widen to $96 billion. Growth is expected at 5% and limited inflationary pressures may emerge.Read More
March 17, 2011
Escalation of violence in Bahrain has rattled the GCC and raised the risk premium in the region. The dispute is more about the lack of political representation and the perception among the Shiite majority of unfair treatment. In the short-term, further tensions should be contained and social needs could be met given the massive financial resources of the region. In the long-term, the call for political reforms could intensify depending on political development in other MENA countries. Qatar, Kuwait and the UAE are unlikely to be affected by the crisis given their higher standard of living, small local population, and the relatively stable political environment. Some spillover into Saudi Arabia could occur but will have no material political consequences. Nevertheless, high unemployment among nationals in Saudi Arabia remains a major challenge.Read More
December 27, 2010
Growth in actual government spending in Saudi Arabia continues to decelerate going into 2011.We expect the 2011 budget to record a surplus of 5.2% of GDP based on the assumption of average oil price of 80$/barrel and a 5% increase in spending.Read More