Saudi Arabia’s central bank warns global slowdown may hit growth

In April the International Monetary Fund (IMF) estimated that Saudi economic growth in 2019 may be slightly higher than its earlier forecast. (AFP/File photo)
Updated 10 June 2019

Saudi Arabia’s central bank warns global slowdown may hit growth

  • Saudi Arabia’s economy grew by 2.2 percent in 2018, compared to a decline of 0.7 percent in 2017
  • Main risk for the Saudi economy comes from its exposure to the global oil market

RIYADH: Saudi Arabia’s economy is expected to pick up in 2019 but a global economic slowdown and its potential impact on the global oil market could impact growth, the Kingdom’s central bank said.

Saudi Arabia’s economy grew by 2.2 percent in 2018, driven by the oil sector, compared to a decline of 0.7 percent in 2017, the Saudi Arabian Monetary Authority (SAMA) said in a report.

The main risk for the Saudi economy comes from its exposure to the global oil market. The oil sector accounts for some 45 percent of Saudi GDP and more than 63 percent of government revenue. 

“There have been recent signsof slowing global growth, which could indirectly impact the Saudi economy,” the report warned. “Continued structural reforms will likely place some pressure on economic growth in the short-term,” it added, without giving a forecast for 2019.

In April the International Monetary Fund (IMF) estimated that Saudi economic growth in 2019 may be slightly higher than its earlier 1.8 percent  forecast due to the faster expansion of the non-oil sector compared to the wider economy.

The Saudi central bank governor told Reuters in April that Saudi economic growth in 2019 would be “no less than 2 percent”.

For the non-oil sector, growth is expected to be stimulated by expansionary fiscal policy as the budget for 2019 shows a significant increase in capital expenditure by SR245 billion ($65.3 billion), the report said.

Saudi Arabia’s s non-oil sector saw modest growth of 1.7 percent in 2018 versus 1 percent in the previous year, SAMA said. The country’s estimated budget deficit was SR136 billion Saudi or 4.6 percent of GDP in 2018 compared to the 9.3 percent deficit in the previous year. Government revenues grew to SR895 billion in 2018, up 30 percent over the previous year, it added.

Non-oil revenues totalled SR287 billion, a rise of 90 percent on the previous year, with more than half coming from tax revenues, while government expenditure rose by 11 percent to SR1 trillion in 2018.


Tankers defer retrofits to cash in on freight rates

Updated 19 October 2019

Tankers defer retrofits to cash in on freight rates

  • The rates for chartering a supertanker from the US Gulf Coast to Singapore hit record highs of more than $17 million and a record $22 million to China earlier this week

SINGAPORE: Tankers that had been scheduled to install emissions-cutting equipment ahead of stricter pollution standards starting in 2020 have deferred their visits to the dry docks to capitalize on an unexpected surge in freight rates, three trade sources said.

US sanctions on subsidiaries of vast Chinese shipping fleet Cosco in September sparked a surge in global oil shipping rates as traders scrambled to find non-blacklisted vessels to get their oil to market.

The rates for chartering a supertanker from the US Gulf Coast to Singapore hit record highs of more than $17 million and a record $22 million to China earlier this week.

By comparison, prior to the sanctions, shipping crude from the US Gulf to China cost around $6 million-$8 million.

The extraordinary spike in freight rates proved too good to miss for some shipowners who were due to send vessels to the dry docks for lengthy retrofitting and maintenance work.

“We can confirm several owners have postponed dry docking earlier scheduled for the months of October and November to take advantage of the skyrocketing freight rates,” said Rahul Kapoor, head of maritime and trade research at IHS Markit in Singapore.

The shortage of ships to move crude oil was so acute that some shipowners also switched from carrying so-called “clean” or refined fuels like gasoline to “dirty” cargoes that include crude oil, despite the costs of having to clean them later.

“Current rate levels are a no-brainer for pushing back scrubber retrofitting,” said Kapoor.

Starting Jan. 1, 2020, the International Maritime Organization (IMO) requires the use of marine fuel with a sulfur limit of 0.5 percent, down from 3.5 percent currently, significantly inflating shippers’ fuel bills.

Only ships fitted with expensive exhaust cleaning systems, known as scrubbers, which can remove sulfur from emissions, will be allowed to continue burning cheaper high-sulfur fuels.

Ships must be sidelined for up to 60 days for fitting these, according to IHS Markit and DNV GL.

While freight rates have abruptly come off their recent highs, shipowners can still profit from the higher charges.

“One cargo loading at current elevated rate levels can not only finance the scrubber capex, but also account for extra costs incurred to install the scrubber at a later date,” said Kapoor, referring to the capital expenditure of fitting the scrubber.

Freight rates are expected to hold firm for the rest of the year.

“With seasonal demand support and tanker supply deficit still pronounced, we expect (fourth-quarter) tanker freight rates to stay elevated and end the year on a high note,” Kapoor said.