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Saudi Arabia Business Forecast Report Q3 2014

  • May 2014
  • -
  • Business Monitor International
  • -
  • 44 pages

Core Views

Continued heavy spending on the part of the government indicates its ongoing concerns about the need to shore up its key bases of support, given the persistent threat of public unrest. While we maintain that large-scale protests are unlikely to occur in Saudi Arabia, large youth unemployment coupled with a lack of political liberties mean that tensions will continue to linger. Non-hydrocarbon growth in Saudi Arabia will remain buoyant over 2014 and 2015, spurred by sustained domestic demand and the
government’s ongoing infrastructure spending. We forecast overall real GDP growth of 4.3% this year (moderating to 3.6% by 2015). Although balance of payments stability in Saudi Arabia is unlikely to come under any pressure in the foreseeable future, we expect the current account surplus to shrink substantially in the years ahead, falling from 23.5% of GDP in 2012 to 10.6% of GDP by 2017.

Developments in Egypt, Syria and Iran have disrupted relations between Saudi Arabia and its traditional ally, the United States. Although we expect the alliance to remain firm over the coming years, we note that Riyadh’s foreign policy risks have increased, with the prospect of a US-Iran détente presenting a particular quandary to Saudi policymakers.

Table Of Contents

Saudi Arabia Business Forecast Report Q3 2014
Executive Summary . 5
Core Views 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis .. 7
BMI Political Risk Ratings .. 7
Domestic Politics . 8
Succession Risks Allayed For Now ..8
The binding appointment of 70-year Prince Muqrin bin Abdulaziz as second in line to Saudi Arabia's throne resolves the critical issue of
succession for the time being. The stage is now set for a prolonged period of transition, as the younger generation of royals gradually
acquires more responsibilities. We expect the incremental pace of reform adopted by King Abdullah to continue over the medium
term.
TABLE: POLITICAL OVERVIEW .8
Foreign Policy 9
Struggling To Respond To Iran's Diplomatic Reach ..9
Saudi Arabia has struggled to mount an effective response to Iran's return to international diplomatic circles, hampered by rising discord
within the Gulf Cooperation Council (GCC). While Riyadh will continue to look for new allies in Asia, its dependence on the US is set to
persist over the coming years.
TABLE: RECENT LEADERSHIP CHANGES .9
TABLE: POSSIBLE SCENARIOS FOR IRAN AS DIPLOMACY ADVANCES 10
Long-Term Political Outlook .. 12
Scenarios For The Coming Decade 12
The Saudi royal family depends on steady oil revenues to maintain its tight grip on the population. As a result, a sustained downturn in
global oil demand could lead to substantial unrest and, potentially, regime change over the long term.
Chapter 2: Economic Outlook . 15
SWOT Analysis 15
BMI Economic Risk Ratings 15
Economic Activity I .. 16
Remaining A Regional Outperformer 16
The outlook for Saudi Arabia's economy remains bright, with favourable growth prospects for both private consumption and fixed
investment set to propel the continued expansion of the non-hydrocarbons sector. We expect disruptions linked to recent labour reforms
to ease over the second half of 2014, paving the way for a strong performance in the construction sector. We forecast real GDP growth
of 4.3% and 3.6% in 2014 and 2015 respectively.
table: Economic Activity .16
TABLE: BMI AND BLOOMBERG CONSENSUS FORECASTS FOR BRENT, Q114-2016 (USD/BBL) .. 17
Economic Activity II . 19
Buoyant GCC Growth To Continue Over H214 19
The latest HSBC purchasing managers' index (PMI) figures continue to support our positive outlook for the UAE and Saudi Arabia. With
the non-oil private sectors of both countries still expanding at a rapid pace, we retain our forecasts for real GDP growth of 3.9% and
4.3% for the UAE and Saudi Arabia respectively in 2014.
TABLE: REAL GDP GROWTH, % 19
Monetary Policy . 20
Restrained Inflation Conditions To Continue ..20
Inflationary pressures in Saudi Arabia will remain restrained throughout the coming quarters, and stem largely from housing costs. We
forecast average consumer price inflation of 3.4% this year and 4.0% in 2015, from 3.3% in 2013. 20
TABLE: Consumer Price Inflation 20
Banking Sector .. 21
Banking Sector: Growth Dynamics Remain Strong .21
We maintain a positive medium-term outlook towards the Saudi Arabian commercial banking sector, despite mixed earnings results for
2013 linked to the government's workforce nationalisation efforts. We forecast asset and credit growth to remain robust over the coming
quarters, reaching 8.0% and 10.0% respectively by the end of 2014.
TABLE: TOP LISTED BANKS' NET PROFIT (SARbn ) .21
Chapter 3: 10-Year Forecast . 23
The Saudi Arabian Economy To 2023 .. 23
Politics Main Risk To Long-Term Outlook .23
Assuming the survival of the current form of government into the medium-term, we see ongoing strong growth and asset accumulation
via real expansion in investment and exports, amid relatively high oil prices.
TABLE: Long-Term Macroeconomic Forecasts .23
Chapter 4: Business Environment 25
SWOT Analysis 25
BMI Business Environment Risk Ratings .. 25
Business Environment Outlook 26
Institutions . 26
TABLE: BMI Business And Operation Risk Ratings ..26
table : BMI Legal Framework Rating 27
Infrastructure 28
Market Orientation . 29
Table: Labour Force Quality .29
TABLE: MENA - Annual FDI Inflows ..30
Operational Risk . 31
table: Trade And Investment Ratings ..31
TABLE: Top Export Destinations .32
Chapter 5: Key Sectors 33
Defence 33
TABLE: Defence Expenditure 34
TABLE: Rail Freight .39
Other Key Sectors . 41
table : Telecoms Sector Key Indicators .41
table : Autos Sector Key Indicators ..41
table : Pharma Sector Key Indicators ..41
table : Oil and Gas Sector Key Indicators .42
table : Infrastructure Sector Key Indicators 42
table : Food and Drink Sector Key Indicators ..42
Chapter 6: BMI Global Assumptions .. 43
Global Outlook . 43
Growth Increasingly Polarised ..43
Table: Global Assumptions ..43
Table : Developed States , Real GDP Growt H, % 44
Table : BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % .. 44
Table : Emerging Markets , Real GDP Growth , % ..45

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