RIYADH, 25 April 2003 — While the war in Iraq and the resulting hike in oil production and prices caused a surge in GDP, it slowed down private-sector growth, and this in turn will have an impact on the creation of jobs.
The oil sector employs only about 1.5 percent of the workforce.
These are the major conclusions of a study entitled, “Saudi Arabia’s Economy: First Quarter 2003 Update” by Brad Bourland, chief economist at the Saudi American Bank.
The study notes that while real GDP rose from 3.8 percent to six percent on the strength of higher oil output, it will reduce but not eliminate the 2003 budget deficit. Private sector growth, which has averaged 4.1 percent during the past four years, is likely to fall short of the target this year.
According to the study, two distinct trends were noticeable. “The first, which is strongly positive for the economy, is a rise in oil revenues for the Kingdom from $5.5 billion and $5.3 billion per month during 2002 and 2001 respectively to $ 7.7 billion per month for the first three months of 2003.
The second trend, it pointed out, was that despite the sharp surge in oil revenues, there was a slowdown in broader economic activity, especially in travel-related businesses, such as airlines and hotels. Consumer spending also went into a cautious mood as a result of the pre-war tension.
The study forecasts that oil prices and production are likely to decline for the rest of the year, while private-sector activity will pick up. Inflation will remain tame for the year, at a Samba-forecast one percent. The Kingdom’s trade will again pick up, “with a current account surplus for the year projected at $ 13 billion.” As a result, the bank has forecast a budget deficit of SR11.8 billion as against the budget forecast of an SR39 billion deficit.
According to the study, both prices and production will decline for the rest of the year, as most of the market forces that caused the spurt are now reversing. Venezuelan oil has returned to nearly full production, the Iraqi oil infrastructure was not destroyed during the war, and seasonal demand in the US is now slackening and inventories are rising.
