Saudi Arabia’s nonoil sector will continue to grow strongly, reflecting government-led infrastructure and mining projects, says a report from the QNB Group.

QNB Group recently published its Saudi Arabia Economic Insight 2013 report.

It looks at recent macroeconomic developments and presents QNB Group revised forecast of key economic indicators for 2013-14.

The report points out that Saudi Arabia had the second best economic growth performance among G-20 states in 2012 (6.8 percent).

This confirmed the strong performance over the last five years, with the third highest G20 real GDP growth rate in 2008-12 (averaging 6.1 percent), just below the growth rates of China and India.

Economic growth has led to social prosperity and wealth: GDP per capita at purchasing power parity (PPP), at $31k in 2012, was significantly above the Middle East and North Africa (MENA) average ($11k) and close to the average for advanced economies ($41k).

Saudi Arabia had the lowest risk spreads in the region.

Its dollar Credit Default Swap (CDS) spreads have dropped from an average of 137.3 basis points (bps) in January 2012 to 72.5bps in January 2013 and touched a low of 65.6bps in July 2013, based on its strong economic performance and very low debt.

Saudi Arabia also has high investment grade long-term foreign currency credit ratings from Moody’s, Standard and Poor’s (S&P) and Fitch, at Aa3, AA- and AA- respectively.

In May 2013, S&P upgraded Saudi Arabia’s outlook to positive, reflecting its strong economic growth prospects.

QNB Group forecasts a slight slowdown in real GDP growth to 4.0 percent in 2013 as oil output declines due to weakening global demand.

The nonoil sector will continue to grow strongly, reflecting government-led infrastructure and mining projects.

Real GDP growth will pick up to 4.4 percent in 2014 with a slight recovery in the oil sector and continued strong non-oil activity.

Inflation is expected to remain moderate over the medium term.

The current account surplus is projected to narrow in 2013 and 2014, as lower oil prices and production and higher imports reduce the overall trade balance.

The fiscal surplus will be lower in 2013 and 2014, reflecting lower oil revenue and higher government infrastructure spending.

The outlook for the banking sector remains positive as loan growth is set to pick up with brighter profitability prospects as interest rates trend up.

A narrowing in the current account surplus is forecast as oil exports decline due to a drop in oil production and prices in 2013-14.

Imports will remain strong as the demand for capital goods rise with increased investment spending.

As a result, the services balance is expected to increase reflecting higher freight costs.

“Overall, we project the balance of payments surplus (averaging 9.8 percent of GDP in 2013-14) to boost international reserves to around $810 billion by end-2014, equivalent to about 40 months of import cover,” the report added.