The Saudi economy remains in fairly good shape, and some key sectors, such as petrochemicals, should benefit from an improving global environment. Yet there are headwinds, not least on the fiscal side, and these might begin to impinge on growth, Samba Financial Group says.
Oil production
The main recent development has been the reining back of oil production. The Kingdom has trimmed crude output to around 9 million barrels per day (bpd) in the past few months, from some 10 million bpd in the middle of 2012. The authorities insist that this is a response merely to seasonal domestic demand, which falls in the winter months.
The nonoil economy
The cut in oil output will make a big dent in headline GDP for 2013. According to the Samba report, real hydrocarbons GDP will decline by 3 percent this year. What is less clear is how this might affect activity in the nonoil sector. In general, projects delayed in 2012 will be released this year, and this will keep activity fairly firm. However, new fiscal realities might weigh on nonoil activity in 2014-15.
2012 turned out to be a year of delays, at least in the project sector. Personnel changes in key ministries, along with sequencing issues meant that there were few new projects in the second half of 2012. Now however, with more bureaucratic clarity, it might be that the flow of projects will restart. Certainly, there are still challenges, not least on the financing side. The withdrawal of most French banks from the regional project finance market has left a hole that has not been adequately filled. In addition, new capital rules are likely to crimp further the ability and willingness of international banks to lend, particularly long term.
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