JEDDAH —Using 2010 as the new base year, Saudi real GDP growth improved in 2014 as oil sector growth was higher than expected, while the nonoil sector continued its healthy expansion, Jadwa Investment said in its “Saudi Chartbook for January 2015. The nonoil private sector recorded robust growth, continuing to be the main driver of overall GDP growth, the report said. New data released by the Central Department of Statistics and Information showed a change in the base year (from 1999 to 2010) used to estimate real growth, as well as a revision to sectoral shares of real GDP. This resulted in the oil sector getting a larger share of overall GDP, with most other sectors seeing declines in their share. The recently introduced changes have resulted in lower real GDP growth in recent years… mainly owing to the oil sector's larger share of overall GDP, which increased significantly to 45.1 percent under the new classification... while the breakdown by kind of economic activity shows declining shares to all other nonoil sectors. Real GDP growth accelerated from 2.7 percent in 2013 to 3.6 percent last year. Oil production increased slightly, year-on-year, leading to marginal oil sector growth of 1.7 percent in 2014. Nonoil GDP growth retained its position as the main contributor to overall GDP growth, with private sector continuing to play a vital role in this regard. November data showed a rebound in consumer spending compared to the previous month. While the PMI index slowed for the second consecutive month, it still points to an expanding economy. Year-to-November cement sales were almost at the same level compared to last year. Year-on-year growth in point of sale transactions and cash withdrawals from ATMs rebounded strongly to 30 and 19 percent respectively, following a dip in the previous month. PMI fell for the second consecutive month in November, but remained at healthy levels, pointing to a sustained growth and a continued expansion in the non-oil economy. Year-to-November cement sales stood at 50 million tons, remaining unchanged compared to the same period in 2013. Bank lending to private sector declined, month-on-month, in November for the first time in two years, owing to a larger base effect. The commencement of new mortgage lending rules also played a role in our view. Annual growth of time and savings deposits slowed. The loan-to-deposit ratio declined to 81.2 percent. Month-on-month, bank lending to private sector recorded in November its first negative growth (-2 percent) since December 2011. This was mostly due to a larger base effect given the previous month's significant bank financing of NCB's IPO subscriptions. Annual growth of time and savings deposits slowed in November for the second consecutive month, but maintained its strong double digit growth in 2014. The loan-to-deposit ratio fell back to its September level of 81.2, down from its 2014 peak in October at 82.5. Inflation cooled further during November as both the food and housing components slowed. Food inflation slowed for the first time since July, while rental inflation –the major subgroup of the housing component– recorded a mild slowdown. Other components of the core index recorded mixed results. Inflation cooled further during November as both the food and housing components slowed. Rental inflation, the major subgroup under the housing component, slowed for the second consecutive month. Components of the core index recorded mixed results, with communication continuing to be in the negative territory for the third consecutive month. The current account surplus fell in the third quarter owing to a record high deficit in the services account. “We believe that the annual surplus would be lower than the $106.4 billion announced in the budget statement. Both imports and exports fell, with a larger fall in imports resulting in a slight improvement in the trade balance,” Jadwa said. The current account surplus fell to $22.4 billion in the third quarter, down from $31.9 billion in the second quarter. For the second time in 2014, the services account reached its highest deficit on record. The majority of the deficit again came from the government goods and services account, which is likely to be related to elevated levels of external financial aid and assistance granted to other Middle Eastern countries. Both import and exports fell in the third quarter compared to the second quarter. The larger fall in imports caused the trade balance to slightly improve from $53 billion to $54 billion. Brent crude oil fell to a five and half year low below $57 per barrel in December as ample global supply outweighed lost production from Libya. WTI came under pressure as both US crude and gasoline stocks surged, month-on-month. The count in US land oil rigs fell for the second month in a row to December. Brent fell 23.9 percent, month-on-month, averaging $63 per barrel over December. An uncharacteristic rise in crude stocks in the month of December pressured WTI prices. Lower WTI prices also led to the US land rig count fall for the second consecutive month to December. Saudi crude production declined slightly, month-on-month, in November. Saudi crude output declined only slightly in November, month-on-month, as competition over market share intensified. Latest data for October showed Saudi exports rising slightly, with Asia being the major source of demand. Moreover, the Tadawul All Share Index (TASI) dropped for the fourth consecutive month to December, as sentiment was again affected by lower oil prices... although an expansionary Saudi budget for 2015 provided some good news, helping limit monthly losses. Average daily turnover jumped by 19.8 percent in December, month-on-month, reversing the negative trend of the three previous months. Banks and insurance sectors dominated daily turnover with insurance turnover relative to market capitalization also the highest. Average daily turnover in December increased by 19.8 percent to SR 8.8 billion. The insurance sector frequently has high monthly turnover to market capitalization levels, as it is a sector in which retail investors look to make quick profits. The decline in the TASI during December saw valuations recover, month-on-month, although price to earnings (P/E) still remain below the two year average. TASI valuations have improved in recent months, and are more competitive, but remain on the lower end when compared to selected regional benchmarks. P/E recovered in December but is sitting below the two year average of 16.9…bringing the TASI in line with major developed and emerging market indices. Dividend yields are competitive but slightly below regional indices. The drop in TASI during December meant that only three sectors saw positive performance during the month. Agriculture & food was the largest gainer as the sector benefited from the conclusion of an acquisition deal. Three of the 15 sectors saw positive performance in December. All sectors saw sell-offs in the first half of December... but this reversed in mid-December after the Ministry of Finance pledged strong government spending for 2015. — SG
