Saudi EconomicOutlook & Banking Beyond the Crisis
King Fahd University Of Petroleum & Minerals
December 2010
Said A. Al-Shaikh
National Commercial Bank
Outline
• Global Economic Update• Saudi Arabia Economic Outlook
• Budgetary Developments & Fiscal Policy• Economic Growth Forecasts & Megaprojects• Inflation & Monetary Policy• Banking & Financial Markets
Global Economic Update
Sources: IMF
Global recovery evolved on a steady path in 2010; yet, economic growth will be uneven, with modest growth in developed economies (2.7%), and strong growth in emerging economies (7.1%)
2.6
1.7 1.7
2.8
3.3
2.3
2.0
1.5 1.5
2.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
USA UK Euro zone Japan Germany
Percentage Real GDP Growth
2010 2011
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
48
50
52
54
56
58
60Global composite manufacturing & services PMI
Sources: IMF and JP Morgan
As the effect of stimulus measures wane, demonstrated by weakening PMI since April, global economy is losing momentum with growth expected to slow to 4.2% in 2011 after rising 4.8% in 2010, but a double dip is unlikely
Dollar has been weakening since 3Q, against Euro, on weak economic data in US and expectations of further QE, though medium term weak outlook in Euro area may rebalance Euro-Dollar
Sources: Reuters
FX Movements(January 2006=100)(Percent)
-30
-20
-10
0
10
20
30
40
Jan-
06
May
-06
Sep
-06
Jan-
07
May
-07
Sep
-07
Jan-
08
May
-08
Sep
-08
Jan-
09
May
-09
Sep
-09
Jan-
10
May
-10
Sep
-10
Trade weighted dollarindexEUR/USD
Saudi Arabia Economic Outlook
Budgetary Developments &Fiscal Policy
Sources: EIA, OPEC and NCB
Crude oil prices, based on a gradual recovery in global demand, are expected to average $80 with Saudi production rising to 8.5 million b/d in 2011.
0
20
40
60
80
100
120
140
160
0
2
4
6
8
10
12
Jun-
06
Nov
-06
Apr
-07
Sep-
07
Feb-
08
Jul-08
Dec
-08
May
-09
Oct
-09
Mar
-10
Aug
-10
Average Monthly Crude Production, MMBD (LHS)
Period Average Crude Price, USD/bbl (RHS)
Arabian Light Spot Price, USD/bbl (RHS)
Sources: SMA, MOF and NCB Research
The Current and Fiscal account Balances are projected to register higher surpluses in 2010 and 2011, on expected higher oil revenues
Twin Balances
6.0
10.8 10.0
(3.2)
5.2 4.7
-5
0
5
10
15
20
25
30
35
2003 2004 2005 2006 2007 2008 2009 2010f 2011f
(percent)
Current Account/GDP Budget Balance/GDP
Sources: MOF and NCB Research
Official Budget vs. Actual Spending
(in SAR billion, unless otherwise stated)
2008 2009 2010
Budgeted Actual Budgeted Actual Budgeted NCB Est.
Revenue 450.0 1,101.0 410.0 505.0 470.0 690.0
Oil 370.0 983.4 320.0 449.5 385.0 619.3
Non-oil 80.0 117.6 90.0 55.6 85.0 70.8
Expenditure 410.0 520.1 475.0 550.0 540.0 605.0
Current 245.0 388.9 250.0 410.4 280.0 441.7
Capital 165.0 131.2 225.0 139.6 260.0 163.4
Balance 40.0 580.9 -65.0 -45.0 -70.0 85.0
Memo: (USD/bbl)
Implicit budget oil price 46
Forecast oil price 75
Despite rising expenditure beyond budget, the fiscal balance in 2010 is expected to record a surplus on higher oil revenues
The government has been placing greater emphasis on capital expenditure in order to create job opportunities and support economic growth in the medium-term
Sources: SAMA, MOF and NCB Research
Sources: MOF and NCB Research
The public debt has been reduced sharply, and now government expected to pay off the outstanding debt, but gradually and over an extended period of time
Net Foreign assets, largely in US fixed income securities, will regain back its position of 2008, enabling the government to pursue its fiscal expansionary policy beyond 2010
Sources: SAMA and NCB Research
Economic Growth Forecats &
Megaprojects
Sources: SAMA, MOF and NCB Research
Saudi Economy is well placed to grow at pre-crisis levels, underpinned by government spending, with non-oil private sector leading the recovery
0.60%
3.7% 4.00%
-4
-2
0
2
4
6
8
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f 2011f
(percent)
Real GDP Growth, Contribution by Sector
Oil Non-oil Private Non-oil Public Real GDP Growth
Sources: SAMA and NCB Research
Macroeconomic Indicators
(% change unless otherwise indicated)
2009 2010f 2011f
Nominal GDP (SAR billion) 1,409.0 1,626.0 1815.0
Real GDP 0.6 3.7 4.0
Oil Sector -6.7 2.3 2.6
Non-oil Sector 3.8 4.4 4.5
Of which:
Manufacturing 2.9 4.0 5.5
Construction 4.7 6.0 6.5
Utilities 6.8 7.0 6.0
Private Services 4.1 5.5 5.4
Government Services 3.8 3.0 2.5
CPI inflation (average) 5.1 5.2 5.0
Current account balance (% of GDP) 6.0 10.8 10.0
Overall fiscal balance (% of GDP) -3.2 5.2 4.7
Arab light oil price (USD/bbl) 59.2 75.0 80.0
The robust government infrastructure spending will continue to lend support to the non-oil sector, mainly utilities and construction
Although expenditures in residential construction show faster growth, non-residential works still represent the bulk of investments at 72% with GFCF rising to SAR188 bn in 2010
0
40,000
80,000
120,000
160,000
200,000
2002 2003 2004 2005 2006 2007 2008 2009 2010
SR Million
Non-ResidentialResidential
Sources: SAMA
2009 Stock0
15,000
30,000
45,000
60,000
75,000
90,000
105,000
120,000
135,000
150,000
30,951
34,194
15,378
57,189
9,557
USD Mn147,144
Improved business environment along with economic reforms have accelerated FDI inflows, with manufacturing accounting for the largest share followed by finance & real estate
Sources: SAGIA
2007 2008 20090
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2,724 2,866 2,758
9,65912,014 11,683
1,552
3,634 4,4444,257
11,1358,398
4,628
8,502
8,233
Mining, Extraction of Oil & Gas Services
Manufacturing
Contracting
Finance & Real Es-tate
Others
USD Mn
22,820
35,516
38,151
Steps taken by PIF and SIDF to provide funding for mega infrastructure and industrial projects along with ECA’s and improving appetite of local banks are easing the financing challenge
$335,204
$71,758
$80,688
$88,974
$32,035$32,450
$54,326
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
Projects by Sector (Current)
Others
Refining
Oil & Gas
Infrastructure
Power
Petrochem
Construction
728 current projects in the Kingdom exceeded SAR2.6 tr in worth, while 22% of projects are in the execution phase led by construction, infrastructure and power, respectively
0 50 100 150 200 250 300 350
Construction
Infrastructure
Oil & Gas
Petrochem
Power
Refining
Others
USD billion
Design
EPC (Bid)
EPC (PQ)
Execution
Exploration
Outline-Design (FEED)
On Hold
Planned
Retender
Study
Sources: MEED Projects, as of June 2010
Contracts awarded in 2010 and 2011 are forecasted at SAR240 bn and SAR323 bn, respectively, while construction sector dominates the market, followed by petrochemical and oil & gas sectors
Sources: MEED Projects, as of June 2010
0
10
20
30
40
50
2010 2011 2012 2013 2014 2015
USD Billion
Construction
Oil &Gas
Power
Petrochemicals
Water & Waste Water
Infrastructure
To be continued