Gulf economies set to flourish on oil output increase, interest rate cuts

Gulf economies set to flourish on oil output increase, interest rate cuts
Inflation in the Gulf is expected to slow over the second half of the year, easing the squeeze on real incomes and supporting credit demand and consumer spending. (SPA)
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Updated 26 June 2024
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Gulf economies set to flourish on oil output increase, interest rate cuts

Gulf economies set to flourish on oil output increase, interest rate cuts
  • MENA region’s GDP forecast to grow by 1.5 percent this year, before accelerating to 3.9 percent in 2025

RIYADH: Growth of the Gulf economies is projected to pick up from September thanks to anticipated interest rate cuts and an increase in oil output, according to new data. 

In its latest Middle East and North Africa Gross Domestic Product report, UK-based independent research firm Capital Economics warned that the decision by the Organization of the Petroleum Exporting Countries to keep output low until October means a boost to GDP will take longer to materialize than previously expected.  

OPEC and its allies, known as OPEC+, have implemented substantial output cuts since late 2022, totaling 5.86 million barrels per day, or about 5.7 percent of global demand.  

Earlier this month, OPEC+ extended 3.66 million bpd of cuts until the end of 2025 and prolonged 2.2 million bpd of voluntary cuts until September 2024. The voluntary cuts will be phased out gradually from October 2024 to September 2025. 

The countries which have made voluntary cuts to output include Kuwait, Oman, Saudi Arabia and the UAE.  Despite this delay, “non-oil sectors should continue to grow relatively strongly,” the report states.  

“A monetary loosening cycle should begin soon as the Gulf follows the Fed (US Federal Reserve), which we expect to start cutting rates from September,” it added.  

Furthermore, inflation in the Gulf is expected to slow over the second half of the year, easing the squeeze on real incomes and supporting credit demand and consumer spending. 

However, the report also notes that non-oil growth across much of the Gulf is expected to ease over the next few years. 

A decline in oil prices next year presents a challenge to non-oil sectors, with budget and current account positions likely to weaken. 




Non-oil growth across much of the Gulf is expected to ease over the next few years. (SPA)

The UAE and Qatar are expected to maintain loose fiscal policies, leveraging their strong balance sheets to support their economies.  

Kuwait may also utilize its strong balance sheet. In contrast, Oman and Bahrain will need to persist with a tight fiscal stance.

Saudi economy outlook

Saudi Arabia’s decision to maintain low oil output as part of the OPEC+ deal will constrain GDP growth in the near term, the report said.

Despite efforts to manage crude prices, the report suggests that revenue will fall back next year, potentially leading the Saudi government to scale back some spending plans.  

Nevertheless, the Saudi economy expanded by 1.4 percent quarter on quarter in the first three months of 2024, ending the technical recession. Both oil and private non-oil activities contributed to this growth, offsetting weaker government activities. 

The report further elaborates on the OPEC+ decision to extend oil output cuts until October, which will limit GDP growth in the short term.  

However, Saudi Arabia is expected to gradually unwind its 1 million barrels per day voluntary output cut starting from the fourth quarter of 2025, with a more aggressive increase in oil output projected thereafter. 

In light of the OPEC+ rollover, oil prices are anticipated to remain higher than previously expected for the rest of the year.  

Despite this, Saudi Arabia is projected to continue running budget deficits, which are likely to be wider than currently budgeted. 

FASTFACTS

• Saudi Arabia’s economy is expected to grow by a modest 1.3 percent this year. As oil output increases from the fourth quarter and through 2025 to 2026, growth is projected to accelerate to 4.5 and 4.8 percent, respectively.

• The UAE’s GDP growth is expected to reach 3.3 percent this year, with an acceleration to 5.5 percent in 2025, the report stated.

The state has ample financing options, demonstrated by significant sovereign debt issuance and a recent Aramco share sale.  

The Kingdom’s Public Investment Fund also plans to ramp up local investments this year, equating to about 2 percent of GDP, relieving the central government of some financial burdens, the report further highlighted. 

Overall, Saudi Arabia’s economy is expected to grow by a modest 1.3 percent this year. As oil output increases from the fourth quarter and through 2025 to 2026, growth is projected to accelerate to 4.5 and 4.8 percent, respectively.

Elsewhere in the Gulf

Additionally, the UAE is forecast to raise oil output sooner than other OPEC+ members, bolstered by supportive fiscal policies.  

This positions the country as the fastest-growing economy in the Gulf for both this year and the next.   The UAE’s GDP growth is expected to reach 3.3 percent this year, with an acceleration to 5.5 percent in 2025, the report stated. 

Qatar’s economy is likely to record modest growth this year and much of next year, but is expected to take off as liquefied natural gas output surges from the end of next year.  

The report indicates that economic growth in Qatar slowed last year due to capacity limits in the hydrocarbon sector and the fading boost from the 2022 FIFA World Cup.  

Non-hydrocarbon growth is expected to pick up this year due to lower interest rates and slowing inflation. However, lower global LNG prices will shrink the budget surplus, limiting fiscal support. 

Qatar’s GDP growth is forecasted at 2 percent and 2.3 in 2024, 2025, weaker than consensus estimates, the report highlighted.  

Nevertheless, growth is expected to jump to 11.5 percent in 2026, making it one of the fastest-growing economies globally. 




The Saudi economy expanded by 1.4 percent quarter on quarter in the first three months of 2024. (SPA)

For Kuwait, Oman, and Bahrain, economic growth will be weaker this year than previously expected due to the OPEC+ decision.   Governments in Oman and Bahrain are likely to maintain tight fiscal policies, weighing on non-oil sectors.  

Capital Economics also stated that hydrocarbon receipts are expected to be weaker, leading to deteriorating budget and current account balances.  

Oman is better positioned to weather this due to recent government commitments to fiscal tightening, though strict measures are likely to continue.  

Bahrain, on the other hand, needs to aggressively tighten fiscal policy to stabilize and reduce its debt-to-GDP ratio, the report stated.

Beyond the Gulf

Outside the Gulf, current account deficits have narrowed, easing external strains.  

In Egypt, this forms part of a broader policy shift requiring tight monetary and fiscal policies. Although inflation has peaked, interest rate cuts are not expected until early 2025.  

Morocco is set to begin a monetary loosening cycle soon due to low inflation, potentially allowing the central bank to widen the dirham’s trading band, leading to appreciation against the euro. 

Tunisia remains an exception, with high inflation and dwindling foreign exchange reserves threatening a balance of payments crisis and potential sovereign default. 

Capital Economics forecasts the MENA region’s GDP to grow by 1.5 percent this year, before accelerating to 3.9 percent in 2025 and 4.6 percent in 2026, outpacing consensus estimates for the latter years.


Global AI Summit in Riyadh to host top-level discussions on AI impact 

Global AI Summit in Riyadh to host top-level discussions on AI impact 
Updated 21 July 2024
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Global AI Summit in Riyadh to host top-level discussions on AI impact 

Global AI Summit in Riyadh to host top-level discussions on AI impact 
  • The event, organized by the Saudi Data and AI Authority, will focus on one of today’s most pressing global issues — AI technology

RIYADH: Saudi Arabia will welcome economic policymakers, major technology and artificial intelligence companies, international thought leaders, and heads of international organizations to Riyadh this September as the Global AI Summit returns for its third edition.

The event, organized by the Saudi Data and AI Authority, will focus on one of today’s most pressing global issues — AI technology — and will attempt to find solutions that “maximize the potential of these transformative technologies for the benefit of humanity,” a statement released Sunday said.

The third edition of the event will be held at the King Abdulaziz International Conference Center from Sept. 10 to 12 under the patronage of Saudi Crown Prince Mohammed bin Salman in his capacity as chairman of the board of directors at SDAIA, the statement added.

The GAIN Summit will take place amid increasing concerns about the impact of AI technologies and will reaffirm the Kingdom’s commitment to supporting international efforts aimed at enhancing human welfare in the face of the challenges associated with developing technology.

GAIN 2024 will focus more on AI than its previous editions in 2020 and 2022, with topics including innovation in the sector, key developments shaping a better future for AI, and fostering a supportive environment for human resources in the field.

Other topics include AI at local and global levels, the complementary relationship between humans and AI, business leaders in AI, the relationship between data and applications, GenAI, AI ethics, AI processors and infrastructure, and AI and smart cities.


Saudi industry minister to visit Brazil, Chile to explore lithium production

Saudi industry minister to visit Brazil, Chile to explore lithium production
Updated 21 July 2024
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Saudi industry minister to visit Brazil, Chile to explore lithium production

Saudi industry minister to visit Brazil, Chile to explore lithium production
  • Alkhorayaf will land in Brazil on Monday and leave for Chile, the world’s second-largest producer of lithium, next Sunday

RIYADH: Bandar Alkhorayaf, Saudi Arabia’s mining and industry minister, will visit Brazil and Chile this week, the ministry said on Sunday.

In Brazil, he will hold meetings with officials to discuss expanding the Kingdom’s mining capacity, food processing, and aviation, while in Chile he will explore lithium production, needed for electric vehicle batteries.

“This aligns with the Kingdom’s direction towards expanding the production of EVs,” a Saudi government statement said. 

Alkhorayaf will land in Brazil on Monday and leave for Chile, the world’s second-largest producer of lithium, next Sunday.

On the first leg of the tour in Brazil, Alkhorayaf will meet agricultural and industrial groups, including Minerva Foods, JBS, and BRF SA, as well as the Brazilian Mining Association and mining company Vale.

Brazil’s Energy Minister Alexandre Silveira said last month that Saudi Arabia’s Public Investment Fund plans to invest $15 billion in Brazil in areas such as green hydrogen, infrastructure, and renewable energy.

In Chile, the minister will meet his counterpart Aurora Williams, as well as mining companies Antofagasta, and Codelco, a state-run company tasked with bringing the Chilean government into the lithium industry.

Saudi Arabia’s sovereign wealth fund, the PIF, and the Kingdom’s mining company, known as Ma’aden, which is 67 percent owned by the PIF, formed a joint venture called Manara Minerals to invest in mining assets abroad.


Closing Bell: Saudi main index closes in green at 12,195  

Closing Bell: Saudi main index closes in green at 12,195  
Updated 21 July 2024
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Closing Bell: Saudi main index closes in green at 12,195  

Closing Bell: Saudi main index closes in green at 12,195  

RIYADH: Saudi Arabia’s Tadawul All Share Index rose on Sunday, gaining 6.73 points, or 0.06 percent, to close at 12,195.05.   

The total trading turnover of the benchmark index was SR6.12 billion ($1.63 billion), as 74 of the listed stocks advanced, while 154 retreated.   

The MSCI Tadawul Index also closed in green, gaining 2.46 points, or 0.16 percent, to close at 1,529.46.   

The Kingdom’s parallel market Nomu rose 67.8 points, or 0.26 percent, to close at 25,770.14. This comes as 27 of the listed stocks advanced while as many as 34 retreated.   

The best-performing stock of the day was Saudi Manpower Solutions Co., whose share price surged 9.88 percent to SR10.34. 

Other top performers include Maharah Human Resources Co. as well as Al-Baha Investment and Development Co., whose share prices soared by 8.35 percent and 8.33 percent, to stand at SR6.88 and SR0.13, respectively.   

The worst performer was Electrical Industries Co., whose share price dropped by 5.51 percent to SR6.00.    

Other notable declines included Alinma Hospitality REIT Fund and The Mediterranean and Gulf Insurance and Reinsurance Co., with share prices falling 3.38 percent to SR8.29 and 3.25 percent to SR29.80, respectively. 

On the announcement front, Saudi Tadawul Holding Co. reported a profit increase to SR146 million for the second quarter of 2024, reflecting a 55 percent rise from SR105.2 million in the same period last year.  

The company attributed this growth to a 50.3 percent increase in operating revenues, which reached SR741.1 million in the first half of 2024, up from SR493.0 million in the corresponding period of the previous year. 

According to a release on the bourse, Saudi Arabian Amiantit Co. reported a net profit of SR5.11 million for the second quarter of 2024, reversing a net loss of SR10.08 million from the same quarter last year, marking a 150.7 percent improvement.  

This positive shift was attributed to a 17.4 percent increase in revenue due to expanded sales and a higher volume of new orders. 

Kingdom Holding Co., Sumou Holding Co., and Jeddah Economic Co. have signed an agreement to establish a new SR6.8 billion fund to acquire the Alinma Jeddah Economic Fund, currently fully owned by Jeddah Economic Co. Kingdom Holding Co. will hold a 40 percent stake in the new fund. 


Saudi Arabia’s US treasury bond possession increases 22.46% year-on-year to $136.3bn

Saudi Arabia’s US treasury bond possession increases 22.46% year-on-year to $136.3bn
Updated 21 July 2024
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Saudi Arabia’s US treasury bond possession increases 22.46% year-on-year to $136.3bn

Saudi Arabia’s US treasury bond possession increases 22.46% year-on-year to $136.3bn

RIYADH: Saudi Arabia’s possession of US treasury bonds increased to $136.3 billion in May, compared to $111.3 billion for the same month in 2023.

The figures mark a 22.46 percent year-on-year increase.

Data released by the US Treasury Department placed Saudi Arabia in 17th spot among the largest investors in such financial instruments in May.

The report revealed that the Kingdom held bonds valued at $135.4 billion in April, compared to $135.9 billion and $131.1 billion in March and February, respectively.

The figures illustrate Saudi Arabia’s growing influence in international financial markets, highlighting a keen understanding of leveraging sovereign wealth to secure and strengthen the Kingdom’s global economic position.

Moreover, Saudi Arabia is the only Arab and Middle Eastern country among the top 20 major holders of US Treasury securities.

A report published in January by the Saudi Central Bank, also known as SAMA, revealed that its investments in foreign securities stood at $1 trillion at the end of December 2023.

SAMA also has $361.75 billion as deposits with banks abroad, the report added.

The data analysis also revealed that Japan emerged as the largest investor in US bonds in May, with holdings totaling $1.128 trillion. China and the UK followed, with portfolios valued at $768.3 billion and $723.4 billion, respectively. 

Luxembourg claimed the fourth spot with assets valued at $385.4 billion, while Canada and the Cayman Islands secured the fifth and sixth positions with treasury portfolios worth $354.5 billion and $336.5 billion, respectively. 

Ireland attained seventh spot with treasury reserves worth $317.7 billion, followed by Belgium and Switzerland, with assets amounting to $313 billion and $290.4 billion, respectively.

France held the 10th position with treasury assets amounting to $283 billion, while Taiwan and India occupied 11th and 12th places with portfolios worth $263.3 billion and $237.8 billion, respectively.

The data collected is primarily from US-based custodians and broker-dealers. Since American securities held in overseas accounts may not be attributed to the actual owners, the department said, the data may not provide a precise accounting of individual country ownership of treasury securities.


Saudi capital market systems prove resilient during global tech outage

Saudi capital market systems prove resilient during global tech outage
Updated 21 July 2024
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Saudi capital market systems prove resilient during global tech outage

Saudi capital market systems prove resilient during global tech outage

RIYADH: Saudi Arabia’s capital market systems proved resilient during the global technical outage on July 19, which disrupted flights, broadcasting services, and essential services worldwide. 

The Saudi Capital Market Authority stated that it promptly coordinated with market stakeholders to mitigate the effects of the interruption, ensuring that operations remained unaffected.  

According to the CMA, its systems were fully operational and prepared to support investors during the trading sessions on July 21.

The outage, triggered by a software update from cybersecurity firm CrowdStrike, caused widespread disruptions across various sectors. 

In response, the CMA directed listed companies on the Saudi capital market to disclose any significant developments related to the incident. The market regulator emphasized that its technical teams are monitoring systems around the clock to ensure ongoing stability and business continuity. 

The Saudi Exchange also reassured investors of its system’s reliability and readiness to provide continuous service. 

On July 20, Saudi Arabia’s National Cybersecurity Authority stated that the impact of the outage on the Kingdom was limited. The authority also noted that it has implemented exceptional measures to monitor threats and cyber risks and to respond to any incidents. 

The Saudi Central Bank confirmed that its payment and banking infrastructure remained unaffected by the outage, emphasizing its adherence to international cybersecurity and operational standards.  

The apex bank also highlighted its commitment to regularly updating precautionary measures to ensure effective business continuity and the resilience of its banking and payment systems. 

The Saudi Data and Artificial Intelligence Authority also stated that its systems and those it hosts in the Kingdom were not impacted by the global technical failure. 

“SDAIA confirms that its systems and the national systems hosted by it in the Kingdom are not affected by the technical failure that struck most countries of the world today,” it stated in a statement posted on X. 

The incident has sparked renewed discussions about the importance of cybersecurity and resilience in critical infrastructure, with many organizations reassessing their strategies and safeguards to prevent future disruptions.

The Kingdom’s Vision 2030 underscores a robust commitment to advancing cybersecurity, with strategic investments aimed at enhancing digital infrastructure and safeguarding national assets against emerging cyber threats.