Saudi Arabia's growth is revised downwards and is projected to return to its medium-term trend of around 4 percent for 2012 and 2013 due mainly to base effects, including the slower pace of increase in Saudi oil production, and the fading-out of one time transfers estimated at around SR94 billion, representing around 4.3 percent of 2011's GDP, the National Commercial Bank in its “Saudi Economic Perspectives 2012-2013” report released Saturday. The report noted increased risks to sustainable global economic growth since the third quarter of last year. The growth projections for 2012 and 2013 at 3.5 percent and 4.1 percent, Y/Y respectively, reflect how the global economy has weakened compared to 5.3 percent for 2010. Yet, this cloudy outlook might be marginally revised upwards given the recent upbeat figures from the US and the success in restructuring Greek debt, but downside risks remain such as rising energy costs, geopolitical risks in the Middle East, and the lack of real growth drivers in peripheral Europe. The Kingdom's real GDP will expand by 3.9 percent and 4.4 percent this year and next, respectively, largely driven by the expansion in the non-oil sector and partially by increased oil production. Moreover, Saudi crude oil prices are expected to average around $105/barrel in 2012. The fiscal account will be in surplus at 14.3 percent of GDP, a substantial SR317.4 billion. The current account surplus is expected to rise at around 31.3 percent of GDP, as hydrocarbon exports offset the increase in imports. “The monetary situation remains in a virtuous cycle with the buoyant broader economic activities, supported by SAMA's policies that enhanced the operating environment for banks,” NCB said in the study. The favorable economic backdrop has obviously helped SAMA in the previous two years, with no recourse to unconventional monetary tools. A sustainable level of credit, elevated excess reserves and a range-bound inflation will justify a wait and see strategy by SAMA in the medium-term. SAMA is expected to maintain repo and reverse repo rates at 2 percent and 0.25 percent, respectively. However, “we are concerned over the uncertain and uneven global economic outlook,” the report noted. While the global economy is no longer on the edge of the abyss especially after Greece's historical debt restructuring, yet structural imbalances across peripheral Europe will continue to pose immense sovereign credit risks that can trigger another global meltdown. The Iranian standoff remains a key concern, adding that though a possible full scale war between Iran and the US/Israel is highly unlikely, the inflammatory rhetoric will continue to disrupt oil markets.
