JEDDAH, 18 May 2005 — Saudi Arabia expects economic growth in 2005 to exceed last year’s level of 5.3 percent, Saudi Arabian Monetary Agency (SAMA) Governor Hamad Al-Sayari said yesterday.
“We are optimistic that it is going to be better than last year,” he said.
The Kingdom has been pumping crude at its highest rates since the last oil boom a quarter century ago in an effort to cool surging oil prices.
The combined rise in output and prices has brought a huge increase in revenues which economists predict could be sustained for several years.
The double boost from high prices and production has pumped extra income into the Saudi economy, boosting government spending and driving a major expansion in the private sector.
The government has pledged to pour money this year into new water, sewage and desalination projects, as well as roads, schools, universities and hospitals.
A study by Riyad Bank said the Kingdom’s economy may grow as much as 8.7 percent this year after 5.3 percent last year and 7.2 percent in 2003.
The government’s budget is forecast to show an even stronger surplus of SR187 billion against SR98 billion in 2004 due to higher oil price and production.
Riyad Bank Chief Economist Khan H. Zahid said: “We expect the Saudi economic boom to continue this year. With rising oil prices driven by global demand, Saudi oil price and production are expected to be significantly higher than last year’s levels. Thus, we forecast the private sector to grow at 6 percent in real terms against last year’s 5.7 percent.” Riyad Bank predicted total government revenues of SR495 billion ($132 billion) and a huge surplus of SR187 billion — the third in a row and by far the largest.
Al-Sayari also said SAMA was monitoring the sharp rise in liquidity after last year’s 17.2 percent rise in M3 money supply, which extended into this year with a five percent increase in the first quarter.
“We always have to be vigilant. The increase in liquidity is an issue,” he said on the sidelines of a Gulf banking conference in Riyadh. “Fortunately inflation is well contained... but the asset inflation is a thing to be worried about,” he added referring to surging equity and real estate prices.
Samba Financial Group Chief Economist Brad Bourland said three quarters of the rise in liquidity last year came from the growth in bank loans.
“We haven’t even begun to feel the impact of high oil prices in the economy,” he said, adding the Gulf region was entering a “golden age the like of which it has never seen.”
