JEDDAH, 15 July 2004 — With near record oil revenues, healthy trade balances and a rallying stock market in the first half, 2004 is shaping up to be the best year for the Saudi Arabian economy in decades, according to Samba Financial Group.
Samba, in its mid-year report on the Saudi economy, revised upward all its forecasts for Saudi economic performances for 2004. “We now see real GDP (gross domestic product) rising 3.0 percent and nominal GDP rising 7.4 percent,” Samba Chief Economist Brad Bourland said.
“Saudi Arabia is expected to record current account surplus of about $41 billion, or 18 percent of GDP,” he said.
The Samba report said yesterday Saudi Arabia is set to achieve a record budget surplus of SR112 billion ($29.8 billion) in 2004.
Due to soaring oil prices, which currently range from $25-$35 per barrel compared to $15-$25 last year, and rising production, Kingdom’s oil revenues are likely to touch $100 billion this year, compared to last year’s $86 billion, which was also the best year in 20 years, Samba said.
Mired in a global economic slowdown in 2003, Samba said it had earlier predicted global growth in oil demand would remain weak at about 1 million barrels per day for the next several years and that non-OPEC oil supplies to the market, especially from Russia, would grow faster than global demand, painting a disappointing picture for future oil prices and production and revenue growth for OPEC countries.
One year on, the picture looks completely different. Samba said, at midyear, it appears that global demand will grow closer to 2.3 million bpd in 2004 and that growth in non-OPEC supply may stall.
“Samba expects foreign assets at the central bank (Saudi Arabian Monetary Agency) to grow this year to $75 billion, up from $59 billion at the end of 2003 and $41 billion in 2002. This creates a substantial asset cushion for defending the country’s pegged exchange rate to the US dollar, which has been in place since 1986,” Bourland said.
The report said the local stock market continued its rally, which began in 1999, so far this year. At the end of June, the market was up 29 percent, after a 78 percent gain in 2003. “Strong local liquidity, underlying earnings strength and optimism due to rising oil prices and IPO (initial public offering) activity appear to be driving the rally in the stock market,” Bourland said.
Due largely to the high oil export earnings, Saudi Arabia’s trade picture will remain healthy in 2004, with a likely 20-year high current account surplus. In 2004, Samba estimates that exports will be about four times the value of imports. Total exports for 2004 will be around $110 billion, of which $100 billion will be oil and natural gas liquids exports, while total merchandise imports will be about $30 billion. When financial transfers, such as worker remittances abroad, and the import and export of services are included to calculate the “current account,” then Saudi Arabia would end 2004 with a current account surplus of $41 billion, the fifth year in a row in the black and its largest surplus since a similar $41 billion surplus in 1981.
Samba also pointed out some interesting shifts with Saudi Arabia’s trade relationships. Over the past decade, the US has been losing share, though it remains Saudi Arabia’s single largest source of imports. These have steadily declined from a recent high of SR24.0 billion in 1998 to SR19.7 billion in 2002, and a probable like amount in 2003 and 2004.
In contrast imports have been rising from Asia, particularly from Japan and China.
Saudi accession to the WTO has gained momentum this year, Samba said.
In 2003, Saudi Arabia signed bilateral trade agreements with most of its remaining major trade partners, including a major breakthrough — a bilateral agreement with the European Union. In the first half of 2004, the Kingdom has focused its efforts on concluding an agreement with its last remaining major trade partner, the US. It is likely that a deal will be struck soon, paving the way for Saudi membership into the WTO later this year or early 2005 after a decade of negotiations.
