The Kingdom's overall real GDP will grow by 7.3 percent in 2011, up from previous forecast of 6.9 percent. The report said nominal GDP figures are impacted even more because they incorporate the increase in oil prices as well as production. With oil prices increasing 38 percent in 2011 and production also increasing 12 percent over 2010, the Kingdom's nominal GDP to increase by 33 percent to SR2.16 trillion in 2011. Oil sector nominal GDP is forecast to grow 54 percent in 2011, the nonoil private sector nominal GDP 10 percent, and government sector nominal GDP, 11.4 percent, the report added.
Saudi oil exports to reach SR1.13 trillion ($302 billion), and nonoil exports to total SR150 billion ($40 billion) in 2011. This is the highest oil export figure for Saudi Arabia in history, Riyad Capita said in its report.
In 2008, the Kingdom's oil exports were SR1.05 trillion ($280 billion). Imports are also expected to increase significantly due to the new government spending. The reports said imports to total SR401 billion ($107 billion) in 2011, compared to previous forecast of SR351 billion ($94 billion) for 2011, and SR362 billion in 2010, an increase of 10.6 percent. Factoring in invisibles trade, the Kingdom to run a current account surplus of SR622 billion ($166 billion), compared to earlier forecast of SR364 billion ($97 billion) and a 2010 figure of SR250 billion ($66.7 billion). This represents 28.8 percent of the Kingdom's GDP.
On the government budget front, total expenditures forecast is SR770 billion, compared to a 2010 figure of SR627 billion. It is notable that the government budgeted SR580 billion for expenditures in 2011, thus giving us a 33 percent overspend. This extra spending, however, does not leave any negative mark on the government's fiscal position because higher oil revenues will more than offset the extra spending and still leave a larger budget surplus than forecast earlier. Our revised forecast for government revenues total SR1036 billion, compared to 962 billion in 2011 and a 2010 figure of SR735 billion (the government budget set it at SR540 billion). Thus, despite the large new spending, the government budget will show a higher surplus of SR267 billion compared to our previous forecast of SR192 billion and the original government budget of SR40 billion deficit.
For 2012, overall real GDP growth to fall to 4.1 percent, primarily due to a drop in oil prices and production. This is despite increases in both the nonoil private sector and the government sector (5.2 percent and 7 percent, respectively) due to next year's additional government spending. The current account will see a smaller surplus of $114 billion (20.9 percent of GDP), while the government's budget surplus will fall significantly (although, it will still remain a surplus) to SR59 billion (2.9 percent of GDP).
The Riyad Capital report said March and April of this year saw big increases in monetary base, SAMA's (Saudi Arabian Monetary Agency's) foreign assets and money supply in the Kingdom as the government pumped out the first round of cash spending. This was helped significantly by the record increase in global oil prices and Saudi oil revenues. The impact, as expected, was strong and an almost immediate increase in consumer spending, imports and bank lending to the private sector. However, the initial boost waned in the subsequent months.
SAMA's net foreign assets, however, continued to rise as oil prices recovered and the Kingdom significantly increased production in the second half of the year. Bank lending also slowed in September.
The report said economic boost from the initial round of government spending has ended, while oil exports increased significantly in the second half of 2011.
For 2012, we expect global growth to slow down even more (see Table 8), thus keeping oil prices low. We also expect the Kingdom to cut oil production somewhat in 2012. Thus, the Saudi economy will show slower growth next year. Risks to our forecasts remain, as well as upside potential. The key risk is a breakdown of the Euro zone that may have significant negative impact on the entire global economy. The key upside is that Europe will be able to solve its problem and a global recession will be avoided. At this point, we believe in the latter and thus more upside in oil prices (note: we do not, however, rule out a sharp, sudden deterioration in the euro zone).
The Riyad Capital report said global oil prices fell after April, reaching a low of $75 a barrel (WTI) on Oct. 4, spurred primarily by the deepening euro zone financial crisis, and a return of Libyan oil to the market. Some recovery in prices is occurring at year-end ($96.8 per barrel as of Nov. 25) as Saudi Arabia curtails supply in response to Libyan exports re-entry and as the winter high season kicks in. However, the medium-term outlook remains weak. Three factors are responsible: Falling global demand, continued excess OPEC production and a strengthening dollar reducing speculative demand.
On the fundamentals side, demand is forecast to rise less than earlier expectations. In its latest (October) monthly oil market report, OPEC has lowered its global demand forecast for 2011 and 2012 for the fourth month in a row. World oil demand growth forecast is down by 0.18 million barrels per day in 2011 and 1.2 mbpd in 2012.
Fundamentals seem to be playing a greater role in price determination so far this year. There was a slight excess supply in H1, 2011, thus pushing prices down. In Q3, 2011, this turned into an excess demand, thus, reversing the price decline. According to the OPEC report, global crude oil demand averaged 88.36 mbpd in Q3, 2011, giving us a call on OPEC crude of 30.5 mbpd. Given OPEC production of 29.92 mbpd in the same period, there was an excess demand of 0.59 mbpd in the quarter.
Saudi oil production has also increased following the withdrawal of Libyan exports earlier in the year. According to OPEC, in August it increased to a high of 9.708 mbpd, compared to 8.687 mbpd in March. Year-to-date till September, production has averaged 9.3 mbpd, compared to 8.2 mbpd in 2010. There will be some cutback in the months ahead as Libya re-enters the market, but not to the pre-crisis levels. Riyad Capital thus revised upward its full year forecast to average 9.2 mbpd in 2011. For 2012, oil production is expected to be slightly lower at 9 mbpd.
These revisions boost further economic forecasts for Saudi Arabia for this year. However, the increase is due to the oil sector. In fact, Riyad Capital lowered its government and private sector growth forecasts for 2011 based on the waning impact of government spending on the economy since June of this year.
