JEDDAH – Saudi Arabia's economic growth is likely to slow to 4.2 percent in 2013, down from 6.8 percent in 2012, Jadwa Investment said in a new report, as lower oil production will cause total real economic growth to decelerate, and combined with lower oil prices, will reduce the budget and current account surpluses. However, it still expected “another year of solid economic performance in 2013,” adding that nonoil growth will be strong, yet inflation should slightly ease. Inflation is forecast to moderate to an annual average of 4.3 percent in 2013, supported by declining rental inflation, as more properties enter the market. “This decline is because oil production is forecast to drop after a 5.5 percent rise in 2012. Growth in the nonoil economy will be 5.8 percent. Government spending will be supported by greater bank lending and high consumer spending,” the report added. Jadwa said construction and transport, the main beneficiaries of government spending, should be the fastest growing sectors this year. “Budgeted government spending for 2013 is slightly below the actual level for 2012, however we do not view this as withdrawal of the stimulus or a rethinking of the ongoing expansionary fiscal stance. Investment is budgeted at a record high and total spending will provide an important stimulus to the economy,” Jadwa added. The report said another budget surplus was expected in 2013 and the government will draw down its foreign assets, which stood at around $634.8 billion at the end of November 2012, to finance its expenditure plans in the event of any shortfall in revenues. Growth in the non-oil economy will be 5.8 percent,” it said. “The non-oil sector will benefit from elevated government spending as well as corporate lending and solid domestic consumption. We expect 2013 to be the fifth consecutive year that the economy is driven by expansionary fiscal policy.” Jadwa said it expected the total government expenditure to be equivalent to 31 percent of GDP compared with an average of 30.4 percent in the last 10 years. It noted that high public sector expenditures particularly investment spending is “psychologically” important for the private sector. Non-oil private GDP growth is forecast at 6.3 percent compared with a 4.9 percent average for the last ten years, the report said. “This willingness and ability to support the economy will be important in 2013 as international and regional events are dampening sentiment and have the potential to damage the economy,” the report said. It said the main economic risk is from the situation in the Euro-zone and fiscal uncertainty in the United States, adding that the “fluid” regional political situation will continue to make foreign investors wary and impact the sales of companies that export to the region. It also brings the risk of stock market and oil price volatility. “The impact of government spending across the sectors of the economy will depend on the nature of such spending….while government investment spending is budgeted at a new all-time high, we expect an over-spending that will take investment spending to 10.3 percent of GDP compared with 7.8 per cent in the last ten years,” Jadwa said. “This will maintain a solid performance by the private non-oil sector particularly construction activities…. we expect the latter to maintain its position as one of the fastest growing sectors in the Kingdom in 2013.” Turning to the fiscal policy, the report said high spending will continue to underpin the economy, citing the recently-announced 2013 budget, which projects a surplus of SR9 billion, based on revenues of SR829 billion and expenditure of SR820 billion. “The budget highlights again the government's intention to continue to stimulate the economy. Budgeted investment spending, raised by 28 percent to an all-time high of SR285 billion, will support healthy economic growth and provide encouragement and opportunities for the private sector at a time of global and regional uncertainty,” it said. “While revenue projection is less conservative than in previous years, in the event of a shortfall in revenues, any deficit can be financed comfortably by drawing from SAMA's huge stock of foreign assets, which stood at $635 billion at the end of November.” Jadwa said a significant slowdown in global growth and geopolitical tensions constituted key risks to its forecast. — SG/Agencies
