With oil production in Saudi Arabia rising and the government implementing a massive public spending plan, the outlook for the Kingdom's economy looks robust over the next two years, Credit Suisse analysts write. The Saudi economy has weathered the impact of recent regional events, and if it continues to do so, we forecast its real GDP to grow at an above-trend pace of 5.8 percent in 2011. Saudi oil production climbed 9.9 percent in the first seven months of 2011, according to figures from the International Energy Agency. With the Kingdom using a portion of the increased production to meet the growing demand for energy at home, we see Saudi crude oil output rising 10.8 percent on an average annual basis to 9 million bpd in 2011 and edging up further to 9.2 million bpd next year. The Kingdom's oil sector will remain a key growth driver in the near term, with oil GDP expanding 7.4 percent this year and 3.2 percent in 2012, on our forecasts. Non-oil activity is also expected to pick up in 2011, fueled again by the government's massive spending push. We forecast non-oil GDP growth to rise to 5.3 percent this year and hold firm at that pace in 2012. We see government expenditures leaping 26.9 percent yoy in nominal terms in 2011 to SR795 billion (38.7 percent of GDP). Consequently, we forecast that the fiscal surplus will increase to SR305.4 billion (14.9 percent of GDP)in 2011. If oil prices were to average $120/bbl in 2012, the budget would post a higher surplus of SAR300 billion (12.3 percent of GDP), according to our estimates. On the other hand, average oil prices of $100/bbl would lead to a lower fiscal surplus of SR112 billion (5.5 percent of GDP) next year. Looking ahead, we expect real GDP to expand 4.8 percent in 2012. We also see merchandise imports rising 22.3 percent yoy to $119.2 billion. Assuming Brent oil prices average $110/barrel in 2012, we see the current account surplus reaching $123.7 billion (20.7 percent of GDP) next year. If oil prices were to average $10 higher than our base case, at $120/bbl, our foreign trade surplus forecast would rise to $245.1 billion (37.7 percent of GDP) in 2012, while our current account surplus forecast would increase to $142.4 billion (21.9 percent of GDP). Under the somewhat lower oil price scenario of $100/bbl, our foreign trade and current account balance forecasts would accumulate smaller surpluses of $201.4 billion (36.9 percent of GDP) and $104.9 billion (19.2 percent of GDP) in 2012. Meanwhile, headline inflation is expected to average 5.1 percent in 2011 and 5.6 percent in 2012. – Plamondon is from IHS Global Insight for Credit Suisse Securities, Bayazitoglu is Head of Macroeconomic Research for Emerging Markets in Eastern Europe, the Middle East and Africa, and Voloboev is Director within the Emerging Market. __
