Source: Arab News 2013
Saudi Arabia’s economy continued its robust growth above the pre-crisis average level of 3 percent last year, with real GDP registering 6.8 percent annual growth, driven by the oil sector and nonoil sector, according to Saudi Economic Developments and Outlook report by the National Commercial Bank . However, the NCB projects real GDP to moderate to 3 percent in 2013.
The report said Kingdom’s per capita income rise to SR 93,317, the highest on record. The EU sanctions on Iran’s crude exports that commenced in July enabled the Kingdom as a swing producer to maintain its 30-year high daily production. Saudi oil output rose by 7.2 percent in 2012, averaging 9.92 million barrels per day, which propelled the oil sector GDP by 5.5 percent, the fastest pace since 2005.
The private sector had also maintained its significant contribution to real GDP at 48 percent, growing by 7.5 percent in constant prices, which illustrates the growing role that private enterprises are assuming in the Saudi economy. The main drivers of private sector growth had been the nonoil industrial and construction sectors that posted growth rates of 8.3 percent and 10.3 percent, respectively.
The bank projects real GDP growth of 3 percent for 2013 due mainly to the projected contraction in oil production, which will decline by nearly 400,000 bpd. However, this contraction in the oil sector will largely be offset by the nonoil sector, which is expected to grow by 7.6 percent, the second highest on record, driven by the private sector, mainly manufacturing and construction as well as the public sector that is projected to register around 6 percent this year.
The oil sector will support economic growth in nominal terms if prices surpass those of last year and more than compensate for the contraction in oil production, however, the reduced production will weigh negatively on real GDP.
According to the NCB forecast, $105 a barrel for the average Arabian light spot prices will help keep total revenues above the SR 1 trillion mark, registering SR 1.08 trillion, the fourth highest on record, despite projecting that Saudi oil production will average 9.5 mbd in 2013, marginally lower by 4.2 percent than 2012’s output due to higher compliance among OPEC members. Accordingly, oil revenues are expected to decline by 14.7 percent to around SR 973 billion, which also takes into account a 6.4 percent decline in export volume. Moreover, the bank estimates that real oil GDP will contract by around 3.1 percent in 2013, the first negative figure since 2009 when the Kingdom reduced its production by 1 mbd, from 9.22 to 8.17 mbd.
The NCB report said growth in the nonoil sector will remain above the 7 percent threshold in 2013. Real nonoil GDP in 2012 grew by around 7.2 percent, which is higher than the 10-year average of 4.7 percent, largely driven by the stellar performance of the nonoil private sector.
The aforementioned business cycle will likely remain in place on the back of this year’s government budget allocation for capital expenditure that will total SR 285 billion as well as the continued spillover effects from the permanent fiscal measures that were triggered by the royal decrees. The unemployment assistance program known as “Hafiz” that started in December 2011 have supported private consumption, with around 2 million Saudis having received SR 30 billion by the end of January 2013. Additionally, the increase by more than SR 10 billion in the government’s wage bill as a result of providing regular civil service jobs for temporary public sector workers will continue to act as a catalyst via the multiplier effect.
The bank expects nonoil sector growth to remain elevated, averaging 7.6 percent in 2013, with the nonoil private sector crossing the 8 percent threshold to a record 8.6 percent, as most sectors reap the benefits of the myriad of projects coming on-stream.
Construction and manufacturing will remain the key beneficiaries in 2013, growing at 10.5 percent and 8.5 percent, respectively.