Al Rahji Capital, which on Saturday released its first in-house comprehensive economic report examining the Saudi Arabian economy and the implications of global and regional market trends on the Kingdom, expects inflation in the Kingdom to moderate with an anticipated decline to 5.5 percent at the end of the year from a current level of 6 percent.
According to the report, this positive outlook is supported by robust non-oil export growth and bank credit levels, which have slowly been inching up.
The research indicators show growth in the non-oil private and government sectors to accelerate to 4.4 percent and 4.6 percent respectively in 2010. And driven by rising crude production, it expects the oil sector to grow at 2.5 percent this year as against a 6.7 percent contraction last year.
In contrast, it added, developed economies have come under pressure as confirmed by a recent bout of negative surprises in global economic indicators.
“There continues to be a positive scenario for emerging markets with ongoing growth led by China and India,” the report said.
The research indicators show robust economic growth prospects from the developing markets is expected to continue, albeit at slightly moderating levels in the months ahead.
“Despite global stock markets remaining under pressure in the near term, emerging economies will be less affected,” it added. The report confirms that with strong economic fundamentals in Saudi Arabia, the impact of a global slowdown is likely to be limited.
“Notwithstanding the recent headwinds from developed markets, the Saudi Arabian economy has gained traction.
However, it added, the economic data for the month of August has been disappointing, signaling a slowing in growth with alarming concerns about ongoing economic recovery. Growth in the US has slowed significantly, indicators from Japan have been negative and, although, second quarter growth in Europe has been strong, the report notes that it is unlikely to be sustained at second-quarter levels going forward due to the austerity measures coming into play.
Soft economic data has had negative implications on world stock markets and crude oil prices. However, the report believes that the global economy will be able to skirt recessionary trends due to expected policy action from central banks and finance ministries in the developed world in addition to the positive influence of growth from emerging markets.
The report highlighted as significant the recent downgrading of Bahrain’s sovereign debt ratings by Moody’s to A3 from A2 due to a high fiscal deficit and a rising breakeven oil price for balancing the budget.
In Qatar, the central bank reduced overnight deposit rates to 1.5 percent from 2 percent. In Oman, the government budget surplus surged to 725 million rial in H1 2010.
Interbank interest rates in the UAE remain at an elevated level whereas inflation decelerated in July. Inflation came down to 0.86 percent year-on-year in July largely due to falling rents.
In Kuwait, the Cabinet of Ministers has allowed banks to finance a massive proposed development project set to transform the Kuwait economy into a new business hub.
“We continue to look for new ways to add value to the investment strategies of the individuals and corporates we serve and are pleased to extend our coverage of the Saudi market with this comprehensive report,” said Dr. Saleh Alsuhaibani, head of Research at Al-Rajhi Capital.
“We are committed to ensuring that our clients have access to the latest news and analysis on global and regional markets and fully understand how economic trends and market movements can impact their businesses and portfolios. We are delighted to launch this new research product, which is the first of a series of monthly economic reports looking at these issues, alongside the in-depth sector and company reports already being issued by Al-Rajhi Capital’s market-leading research department,” he added.
