HSBC said in its Q1, 2012 report "Who's at risk in 2012" that Modest downward adjustments to the oil prices have done little to dent Saudi Arabia's near-term economic outlook. Running at around $100 a barrel over the coming two years, oil earnings will remain sufficiently high to leave the Kingdom with substantial current account surpluses. This will not only ensure that the currency remains well supported, but should also allow the Kingdom to add to its already substantial stock of foreign assets, mitigating the impact a global squeeze on credit might have on the Kingdom.
The report said budget will also remain in surplus, with the scale of reserves the state has at its disposal likely to give it the confidence to maintain its expansive fiscal stance, even if oil earnings weaken.
In contrast with some of its regional neighbors, the Saudi banking system also appears to have shifted into expansionary mode after an acute credit squeeze that lasted almost two and a half years. With capital levels high and liquidity strong, HSBC said the momentum of credit growth to be sustained, offering support to the private sector and creating a more effective multiplier for increases in public spending.
Indeed, HSBC has raised its estimate for real growth in 2011, and although it expects the headline rate of expansion to fall sharply in 2012, this will be largely attributable to a steady fall in oil output as Libyan crude comes back on line. Domestic demand, by contrast, should hold up well.
Despite the buoyant near-term outlook, however, substantial challenges persist. With unemployment among nationals continuing to run at double-digit levels, it is clear that hydrocarbon wealth and increasing public spending alone are insufficient to address the growing economic demands of Saudi Arabia's large and overwhelmingly young population.
However, the appetite for structural reforms that might support more rapid rates of employment-generating private sector growth still appears muted.
Against a backdrop of global economic distress, mounting regional political tension and the uncertain aftershocks of the 2011 Arab Spring, there is actually much in the outlook that is positive. Average growth running at around 3.5 percent is well ahead of the pace of expansion likely in Western economies and stands comparison with many emerging markets. Strong overall public finances and a robust external account position leave MENA as a whole less vulnerable than many of its peers to the ongoing global credit squeeze and weakening of global trade. Even the political environment shows some sign of normalizing.
Yet, though the strengths are real, the aggregate figures mask wide variance in economic strength and differences in political order. The headline forecasts also obscure longstanding - and newly emerging - economic and political risks that will weigh on performance over the near term, the HSBC report said.
