Saudi Arabia’s 2013 economic growth seen at 3% to 3.5% this year

Abu Dhabi: Saudi Arabia’s economy is likely to grow anywhere between 3.0 per cent to 3.5 per cent this year as the drag on growth from the oil sector appears to be easing while the non-oil sector continues to grow at a robust pace, London-based research firm Capital Economics has said in a report.

“The non-oil sector still appears to be growing at a robust pace of 5 per cent, year-on-year, buoyed by government stimulus as well as rapid credit growth. This year’s budget envisages a 20 per cent rise in planned expenditure, while bank lending continues to grow at over 15 per cent, year-on-year. Activity data for June provide further evidence that the slowdown in growth over the past year or so probably bottomed out in the second quarter,” the report said.

It said falling output from the oil sector has been the main driver of the slowdown in the Saudi economy over the past year.

“However, it looks like the drag on growth from the oil sector may now be easing. Having contracted by 6.3 per cent year-on-year in the first quarter, oil production fell by 3.7 per cent year-on-year in June. All else equal, this should cause the headline GDP growth rate to accelerate.”

In response to Gulf News’ questions by e-mail, William Jackson, Emerging Markets Economist at Capital Economics, said: “The weakness of the global economy means that it’s unlikely that output from the Saudi oil sector will pick up sharply over the second half of the year. That being said, the latest Saudi data do suggest that things are improving. Oil exports picked up between Q1 and Q2, as did oil production.”

“And, it’s worth bearing in mind that although some large oil importers such as China are slowing, other economies, such as the euro-zone do appear to be picking up. So it may be that weak demand for oil from some countries is offset by rising demand from others. All in all, we expect the hydrocarbon sector to become a smaller drag on growth over the rest of the year,” he added.

The Saudi government, which derives about 90 per cent of revenue from oil sales, benefited from higher production last year as international sanctions cut Iranian output. The economy grew an estimated 6.8 per cent in 2012 as King Abdullah allocated oil wealth for projects to expand airports, build roads and real estate.

The kingdom pumped 9.95 million barrels of oil a day on average in 2012. Saudi Arabia raised its 2013 expenditure target by almost a fifth to a record 820 billion riyals ($219 billion). The kingdom posted revenue of 1.24 trillion riyals in 2012 as the price of Brent crude held above $100 a barrel for a second year. Expenditure came in at 853 billion riyals.

In May, Saudi Arabia’s credit rating outlook was raised to “positive” from “stable” by Standard & Poor’s because of an improved outlook for growth in the Arab world’s biggest economy.

Saudi Arabia’s AA- rating, the fourth-highest investment grade, may be raised in the next 24 months if economic growth “remains strong,” the rating company said in a statement at the time. It was the first change in the country’s outlook by S&P since 2007.