JEDDAH – Saudi Arabia's real GDP is expected to grow at 3.6 percent and 3.4 percent respectively in the near-term on the back of high oil prices as well as a surge in government infrastructure spending and public sector wage growth, the National Bank of Kuwait (NBK) said in its latest monthly review, adding that they will continue to generate solid growth going forward."Barring a major global downturn, we expect Saudi Arabia to remain comfortable with oil prices at around $100 per barrel – well above the Kingdom's likely budget breakeven oil price for the next couple of years. This should imply only gradual declines in Saudi oil output as the authorities attempt to balance a slightly looser global oil market," the report said.However, longer-term growth prospects depend upon enhancing the role of the private sector through structural reforms, it noted.NBK said it was expecting a one percent drop in real non-oil GDP this year and 2 percent the following year.As oil prices have softened, Saudi's output has eased back from its mid-year highs. Crude oil production stood at 9.7 million barrels per day (mbpd) in November, down from 9.9 million bpd in June.Following two successive years of increases, the real oil-GDP is seen declining by 1 percent in 2013 and 2 percent the year after.Revenues are forecast to decline as oil prices and production dip. “We estimate that the oil price needed to balance the budget stood at $75 pb in 2012, and could move above $80 in 2013," the report said."Softer oil prices and oil production, added to continued strong growth in imports will see the current account surplus shrink in 2013 and 2014. Nevertheless, it will remain large, at 10 to 15 percent of GDP," it added.The rising government spending and a continued reliance on oil revenues have focused attention on the government's fiscal position, which the IMF predicts could move into deficit by 2017, said the report.The report further said indicators such as ATM and point-of-sale figures, bank lending, and the purchasing managers' index suggest that private non-oil sector activity levels remain solid.But the boost from 2011's exceptional government spending measures may be fading and – combined with supply bottlenecks and slightly tighter project funding conditions – non-oil growth is expected to edge down to 5 percent this year from 6 percent in 2012, the Kuwaiti bank cautioned.NBK further said the budget surplus was expected to decline from 14 percent of GDP to 7 percent in 2013.The government spending is projected to grow at a solid rate in order to finance infrastructure development and as the government seeks to boost employment and living standards, the report said.Despite the economy's broad health, though, the report said, new employment regulations to penalize firms that hire more expatriates than nationals could weigh on the corporate sector growth in 2013.Nonetheless, inflation was likely to rise to a moderate, if manageable, 5 percent in 2013 and 2014.Inflation decelerated through most of 2012, falling to 3.8 per cent y/y in October from 5.4 percent in February. The decline was driven by falling inflation in the ‘housing' and ‘other' subcomponents, said the NBK report.The latter could be related to a reduction in import prices linked to the strengthening of the riyal between mid-2011 and mid-2012, which has since partially unwound. Strong economic growth, upward pressure on wages for nationals and a modest rebound in import prices are expected to push inflation to a moderate, if manageable 5 percent in 2013 and 2014, it added. — SG/Agencies
