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Saudi Arabia Business Forecast Report Q1 2015

  • November 2014
  • -
  • Business Monitor International
  • -
  • 50 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, high youth unemployment coupled with a lack of political liberties mean
that tensions will continue to linger. Saudi Arabia's economic performance will remain largely insulated from the recent decline in international oil prices. We do not expect the government's expansionary fiscal policy to change significantly over the coming quarters, and public spending will continue to support both private consumption and fixed investment. We forecast real GDP growth of 3.6% in 2015, a slight moderation from an estimated 4.3% in 2014 due to the normalisation of domestic
oil production.

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 Q1 2015
Executive Summary 5
Core Views 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic Politics 8
Yemen's Crisis Raises Risk Of Cross-Border Intervention 8
Recent developments in Yemen deepen the security challenges confronting Saudi Arabia and the rest of the Gulf Cooperation Council
(GCC). While not our core scenario, we see a growing risk that Riyadh will intervene militarily in Yemen in the coming years if crossborder
security conditions deteriorate further.
TABLE: POLITICAL OVERVIEW 8
Long-Term Political Outlook 10
Scenarios For The Coming Decade 10
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 13
SWOT Analysis 13
BMI Economic Risk Index 13
Economic Activity 14
Lower Oil Prices Won't Disrupt Robust Growth Prospects 14
Saudi Arabia's economic performance will remain largely insulated from the recent decline in international oil prices. We do not expect
the government's expansionary fiscal policy to change significantly over the coming quarters, and public spending will continue to
support both private consumption and fixed investment. We forecast real GDP growth of 3.6% in 2015, a slight moderation from an
estimated 4.3% in 2014 due to the normalisation of domestic oil production.
TABLE: Economic Activity 14
TABLE: INFRASTRUCTURE SEGMENTS - BMI VIEWS 15
Monetary Policy 17
Modest Uptick In Inflation Over 2015 17
Average annual consumer price inflation in Saudi Arabia will edge up to 3.4% in 2015, from our estimate of 2.8% for 2014. This will be
driven by a recovery in wheat prices and a continued acceleration in rental inflation.
TABLE: Monetary Policy 17
Banking Sector 18
Developing New Sources Of Income 18
We retain our positive outlook on Saudi Arabia's commercial banking sector. Aside from still-strong lending activity, growth in fee income
will be boosted by the underwriting of Islamic bonds and the gradual opening of the stock market to foreign investors.
TABLE: GCC - Islamic Bonds Issued In 2014*, By Underwriter 18
Regional Economic Outlook 20
MENA Oil Exporters: Mixed Impact From Lower Oil Prices 20
Saudi Arabia, UAE and Kuwait are best placed to absorb a significant decline in oil prices over the coming quarters due to substantial
fiscal buffers, enormous reserves and low budget breakeven prices. Elsewhere, Middle Eastern oil exporters will be hard hit by
sustained weaknesses in oil prices. In Iran, lower oil prices will weaken President Rouhani's position and would lead to political gains for
the conservatives. Over the longer term, oil prices around USD60/bbl pose an existential risk to the Islamic regime.
Chapter 3: 10-Year Forecast 25
The Saudi Arabian Economy To 2023 25
Politics Main Risk To Long-Term Outlook 25
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 25
Chapter 4: Operational Risk 27
SWOT Analysis 27
Operational Risk Index 27
Operational Risk 28
TABLE: Operatio nal Risk 28
Transport Network 29
TABLE: MENA - Tra nsport Network Risks 30
Economic Openness 33
TABLE: Middle East And North Africa - Economic Openness 33
TABLE: Top 5 Trade Partners and Product Exports (USDmn Unless Otherwise Stated) 34
TABLE: Top 5 Imported Products (USDmn) 35
Chapter 5: Key Sectors 37
Infrastructure 37
TABLE: Construction and Infrastructure Industry Data 38
TABLE: Construction and Infrastructure Industry Data 39
Oil and Gas 41
TABLE: Oil Production 42
TABLE: Oil Production 43
TABLE: Gas Production 44
Other Key Sectors 47
Table : Pharma Sector Key Indicators 47
Table : Telecoms Sector Key Indicators 47
Table : Defe nce and Security Sector Key Indicators 47
Table : Food and Dri nk Sector Key Indicators 48
Table : Autos Sector Key Indicators 48
Table : Freig ht Key Indicators 48
Chapter 6: BMI Global Assumptions 49
Global Outlook 49
Reality Check: Uncertainty Reigns 49
Table: Global Assumptions 49
Table: Developed States, Real GDP GrowtH, % 50
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 50
Table : Emergi ng Markets , Real GDP Growt h, % 51

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