However, higher base of the current year is likely to act as a drag on growth rates of macroeconomic indicators next year even though overall level will be high. Nominal GDP growth is expected to be just 4 percent in 2012 compared to the expected growth of 23.4 percent this year due to expected slight correction in crude production and prices.

However, moderation in real GDP growth is likely to be less dramatic as it is likely to come down from 6.8 percent this year to 3.6 percent next year. Although smaller fiscal surplus, trade and current account surpluses next year compared to 2011 due to lower crude production, the size of the surplus is likely to be high, the report added.

Average inflation is expected to moderate further to 4.3 percent in 2012.

Global crude oil market witnessed a supply shock early this year when a few countries especially Libya in MENA region witnessed political turmoil which changed regimes. Although the gap created by the withdrawal of Libyan oil from global market was filled by other OPEC countries especially Saudi Arabia, global crude prices rose sharply. Going forward supply contraction is likely due to such disruptions may ease in coming quarters.

Moreover, from demand side perspective, four important factors are likely to have impact on demand for global crude oil and its prices:

• Euro zone sovereign debt issue remains unresolved which has affected global economic sentiments many times in the last one and half years. Although measures have been taken several times to contain the contagion of Greece sovereign debt problem to other European countries, it has spread to other countries such as Ireland, Portugal and now Italy. In recent weeks, yields on 10-year Italian and Spanish bonds have spiked. Recent economic indicators have also been disappointing. Consensus GDP growth has been halved to just 0.8 percent for the year 2012. Moreover, demand for oil has declined by 0.13 mbpd in Q3 compared to last year in Germany. This has resulted into downward revision in oil demand by OPEC and IEA (International Energy Agency) for the area.

• Although recent economic data releases have quelled the fear of recession in the US in near terms, growth is likely to remain under pressure growth next year. Demand for oil has been weak in the first three quarters of the current year. This weakness is likely to continue even next year.

• Monetary policy tightening in the past one and a half years in emerging economies has started moderating GDP growth. The growth is likely to be lower in 2012 in all major emerging economies compared to 2011 growth. This will moderate the growth in demand for oil from these economies.

• According to Al-Rajhi Capital the US dollar to have appreciating bias in 2012 primarily because sovereign debt issues in euro area and persistence general risk aversion in financial markets.

Based on above factors, the report said that average crude price will be slightly lower at $95 per barrel in 2012 compared to this year. As far as crude production is concerned, Saudi Arabia has been filling the gap created by supply disruptions. In order to do so, it has been producing much higher crude this year than its quota. Therefore, as supply disruptions ease in coming quarters, Saudi Arabia is likely to reduce the extra supply. Thus, average crude production in Saudi Arabia to be slightly lower at 9 mbpd in 2012 compared to expectation of 9.1 mbpd in 2011.

In the light of higher than expected average crude prices and crude production in 2011, forecast of nominal GDP growth revised up to 23.4 percent from earlier expectation of 14.4 percent in 2011. Nominal GDP is expected to touch SR2.01 trillion in 2011 from SR1.63 trillion in 2010. Upward revision in the GDP growth is mainly due to a sharp growth in oil sector which is expected to jump 35 percent in the current year. Moreover, growth in both nonoil private and nonoil government sectors are also expected to accelerate. Nominal GDP growth is expected to decelerate sharply in 2012 as due to moderation in both global crude prices as well as crude production in Saudi Arabia. As mentioned, average prices for Saudi Arabia's crude export expected to be $95 per barrel and crude production to be 9 mbpd in 2012. Therefore, nominal GDP growth is expected to moderate to 4 percent next year as there is expected 2.5 percent decline in oil sector in nominal terms. However, growth in nonoil sector is expected to accelerate due to robust private and government spending. Private sector growth is forecasted to accelerate to 11 percent in 2012 compared to 8 percent in 2011. However, government sector is expected to slow down slightly from an expected 17 percent growth in 2011 to 14 percent in 2012. This is primarily because growth in government spending is expected to be slower.

Higher than expected crude production is likely to result into much higher real growth in oil sector. Oil sector growth in real terms is expected to be 9 percent in 2011. So, Al-Rajhi Capital revised its real GDP growth expectation for the year 2011 from 6.1 percent to 6.8 percent. The real GDP is expected to moderate to 3.6 percent in 2012 mainly due to cut in average crude production. Average daily crude production is likely to lower at 9 mbpd in 2012 compared to 9.1 mbpd in 2011. This will result into 1 percent decline in oil sector. Moreover, nonoil sector especially nonoil government sector is expected to slow down from blistering growth of 2011. The government sector (nonoil) is expected to grow 5 percent in 2012 compared to 7 percent in 2011. However, nonoil private sector is expected to accelerate slightly from 5.5 percent in 2011 to 5.6 percent in 2012. This suggests that growth in private sector is likely to outpace that in government sector.

Government revenue is expected to jump almost 35 percent in 2011 compared to the actual revenue in 2010. The jump in the total revenue is expected mainly due to higher oil production and prices. The total revenue is expected to be SR992 billion with oil revenue at SR908 billion in the current year. However, government expenditure is also expected to have jumped due to many initiatives taken by the government early this year. Total expenditure is expected to jump to SR814 billion, a 30 percent increase in 2011 compared to actual expenditure in 2010. Thus, total budget surplus is likely to be SR178 billion this year.

Total revenue is expected to decline from SR992 billion in 2011 to SR890 billion in 2012 mainly due to expected decline in oil revenue from SR908 billion to SR802 billion. Total expenditure is expected to decline from SR814 billion in 2011 to SR746 billion in 2012 mainly due to decline in current expenditure from SR604 billion to SR512 billion. Therefore, fiscal surplus is also expected to shrink to SR144 billion next year.

Trade and current account surplus expected to jump on higher export realization in 2011. Export is likely to jump 40 percent year-on-year this year to SR1320 billion, highest ever level on record. Import is also expected to grow 13 percent year-on-year to reach SR453 billion in 2011. Thus, trade surplus is also expected to touch a record high of SR867 billion equivalent to 43 percent of GDP this year. Current account surplus is expected to reach SR537 billion, equivalent to 27 percent of GDP. However, all external sector figures are expected to be lower as oil GDP is expected to contract in 2012. Export is likely to decline to SR1.17 trillion in 2012 compared to SR1.32 trillion expected this year. With export declining and import retaining its growing trend in 2012, trade surplus is expected to shrink to SR708 billion, 34 percent of GDP. Thus, current account is also expected to shrink to SR373 billion, equivalent to 18 percent of GDP, the Al-Rajhi Capital report said.

Inflation moderated slightly to 5.2 percent in October after a sharp jump in September. Food inflation declined to 3.2 percent, lowest since January 2010, in October from 4.9 percent in September. It is likely to continue its downward trend as global food prices have been soft coupled with high base affect. On the other hand, all other components have shown upward movement. Rent inched up slightly to 8 percent in October from 7.9 percent, whereas "other expenses and service" moved up to 12.3 percent from 11.8 percent during the same period. Home furniture inflation jumped to 2.5 percent from 0.2 percent whereas education and entertainment moved up to 3.5 percent from 1.1 percent.

The average monthly inflation has been 4.9% during January-October 2011 period compared to 4.8 percent for the entire year. Since, it is likely to hover around 5 percent in remaining two months of 2011, average inflation for the entire year is expected to stay at 4.9 percent. Notably, the variation in inflation been the least this year compared to last few years. Standard deviation of inflation was just 0.2 percent in the first ten months of 2011 compared to 1.2 percent in 2008, 1.3 percent in 2009 and 0.6 percent in 2010. Recent global economic weakness has corrected global commodity prices which augur well for inflation going forward. International Monetary Fund in its latest World Economic Outlook forecasted a likely correction in global commodity prices in 2012. The fund expects the commodity price indices shown in the chart below to fall in the range of 4 percent-5 percent next year. Note that average commodity prices surpassed the peaks of 2008 in 2011. This is likely to ease pressure on imported inflation in Saudi Arabia. Domestic factors are also unlikely to put any significant upward pressure on prices. Therefore, the average inflation is expected to moderate further to 4.3 percent in 2012.

Measures of money supply growth moderated in September. M1 grew 22.9 percent year-on-year in September compared to 25 percent year-on-year in August. Currency outside banks slowed down from 32.7 percent year-on-year in August to 26.5 percent year-on-year in September. Currency outside banks declined from SR129 billion in August to SR120 billion in September. Demand deposits, another component of M1, also slowed down from 23.4 percent year-on-year in August to 22.2 percent year-on-year in September. Decline in time and savings deposits accelerated further to 2.9 percent year-on-year in September from a decline of 1.6 percent year-on-year in August. This moderated the growth in M2 to 14.2 percent year-on-year in September from 16.2 percent year-on-year in August.

The deposits had jumped 6.5 percent year-on-year in August due to lower base in August 2010. The broadest measure of money supply M3 decelerated from 14.8 percent year-on-year in August to 11.9 percent year-on-year in September.

Credit growth to private sector from commercial banks eased a bit in September. Loans, advances and overdrafts grew by 8.9 percent year-on-year in September compared to 9.3 percent year-on-year in August. Bill discounted by banks which had jumped to SR8.7 billion in August came down to SR8.4 billion in September. Monthly average bill discounted was SR7.6 billion in 2010 and SR7.9 billion in the first nine months of 2011. Overall bank credit which includes loans, advances and overdraft and bill discounted grew 9 percent year-on-year in September. However, investment in private securities by commercial banks grew just 3.6 percent year-on-year in September.

Rate of accumulation of reserve assets by Saudi Arabia Monetary Agency (SAMA) increased in September to 22.7 percent year-on-year compared to 19.4 percent year-on-year in the previous month. Total reserve assets stands at SR1.96 trillion at the end of September. Reserve position with International Monetary Fund jumped 127 percent year-on-year whereas foreign currency and deposits moved up by 32.3 percent year-on-year in September. Investment in foreign securities which comprises almost 70 percent of the total reserve assets grew 19.7 percent year-on-year in the same month, the Al-Rajhi Capital report said.