Saudi Arabia’s economy shows no signs of slowing as record oil prices spur strong economic growth, record trade and budget surpluses and low inflation, the Saudi Arabian bank Samba said in a report.
“The economic boom in Saudi Arabia continues to gather strength, with 2006 likely to see record oil revenues, and record trade and budget surpluses in an overall context of 20 per cent growth and low inflation,” Samba said in its mid-year 2006 economic report.
“Now in its fourth year, we still believe this boom is only beginning, with signs that strong oil prices and revenues will last many years, a government fiscal position that can support growth in spending for years, and megaprojects just getting under way that will carry high growth through 2010 and beyond,” the report said.
Oil remains the “anchor” of the economy, with Samba forecasting $203 billion in oil export earnings in 2006, an all-time record and up 25 per cent from the record last year of $162 billion.
“Even while allowing the government to provide strong fiscal stimulus to the economy, the oil revenues are not being spent as fast as they are being earned,” the report said.
Of the roughly $17 billion per month in oil export earnings, about $7 billion per month is accumulating as foreign assets at the central bank.
Underlying the strength in the oil market is continued exceptional global economic growth and demand for crude oil as well as oil disruption concerns in oil-producing regions of the world.
Oil prices hit all-time highs during the first half of the year and ended the half at $74 per barrel for WTI, Samba said.
“Our forecast, upwardly revised, is that WTI will average $68 for the year, and the average price for Saudi crude oil will be $62.50/barrel well above the $38/barrel needed to meet the Saudi government budget’s revenue projection,” the report said.
Saudi oil production is likely to average 9.4 million bpd in 2006, the same as in 2005, the report said.
Saudi Arabia pumped some 9.16 million bpd in July, representing 31 per cent of Opec production of 29.71 million bpd, Platts said.
The Saudi economy is set to record nominal GDP growth of 20 per cent this year, and real GDP growth of 5.8 per cent, the Samba report said. Inflation will be under two per cent.
“The difference is that nominal growth captures the rising price of oil, so we find this to be a better measure of what is actually occurring,” the report said.
“The strong oil export earnings will be the main factor behind a likely current account surplus of $114 billion, the eighth surplus in a row,” the report said. The trade profile of the country is healthy and government finances are also strong and growing stronger.
“Even with likely spending growth of 20 per cent over 2005 levels, the government will still run a record surplus in 2006 of a Samba-forecast 250 billion riyals ($67 billion),” the report said.
Besides oil and the stock market, the other major theme of the first half of 2006 was megaprojects, the report said adding that large infrastructure investment is surging.
“Our assessment of major project activity shows some 37 major projects that are under way or have a high likelihood of implementation over the next several years with a total value of $283 billion,” the report said.
“Hydrocarbons – crude oil production, refining, and petrochemicals production – dominate, especially where private sector investment is concerned, but projects are in a wide array of industries and geographically dispersed,” the report added.
