A strong oil sector and large government stimulus will spur Saudi real GDP to grow 5.7 percent in 2012, the National Bank of Kuwait (NBK) said in its latest GCC outlook report. Oil GDP should register a solid five percent or so increase this year and remain flat in 2013.Non-oil GDP growth in 2012 is revised up slightly from five percent to six percent, in light of the economy's apparent momentum.
ATM and point-of-sale figures showed that the consumer sector remains buoyant following the boost to incomes in 2011 and improved bank lending conditions.
Non-oil fixed investment stood at 31 percent of non-oil GDP in 2011, well above its historic average. These domestic components should hold up well amidst further turbulence in the global economy, the report noted.
Inflation is expected to remain close to five percent this year and next. Within this total, however, sectors will diverge.
Food price inflation should remain contained or may dip, while the government's aggressive house building program could start to ease pressures in the rental market.
On the other hand, inflation in other "core" sectors such as clothing, furniture and transport could rise. Despite the upside risks to inflation from a buoyant economy, the report said "we see the authorities leaning towards growth – rather than anti-inflation – policies over the next two years."
Moreover, the report said that after rising by an estimated 23 percent in 2011, government spending growth could slow sharply in 2012 and 2013, to an average of five percent per year.
Nonetheless, fiscal policy will continue to provide key support for the economy. The budget surplus will also remain very solid, at 8-15 percent of GDP so long as oil prices remain close to $100 per barrel.
Higher production has helped lower the oil price needed to balance the budget from $75 in 2011 to $72 in 2012.
Strong oil revenues will also help generate current account surpluses of 15-25 percent of GDP in 2012 and 2013. This will help the Kingdom add to its huge stock of reserve assets, which stood at $541 billion at the end of 2011, the report further said.
The Saudi Gazette