Al Rajhi Capital, the investment-banking subsidiary of Al Rajhi Bank, today released a comprehensive economic report, the first of a series of monthly reports, examining the Saudi Arabian economy and the implications of global and regional market trends on the Kingdom, which remains the region's largest market.
According to the "Economics Monthly" report for September, there continues to be a positive scenario for emerging markets with ongoing growth led by China and India. The research states that robust economic growth from the developing markets is expected to continue, albeit at slightly moderating levels in the months ahead. The report further notes that despite global stock markets remaining under pressure in the near term, emerging economies will be less affected.
In particular, Al Rajhi Capital's report confirms that with strong economic fundamentals in Saudi Arabia, the impact of a global slowdown is likely to be limited. Notwithstanding the recent headwinds from developed markets, the Saudi Arabian economy has gained traction. The report sets out that the Saudi Arabian economy should register a healthy growth rate of 3.9% in 2010 and a budget surplus of SAR40 billion against a budgeted deficit of SAR70 billion. It also expects inflation in the Kingdom to moderate with an anticipated decline to 5.5% at the end of the year from current level of 6%.
According to the report, this positive outlook is supported by robust non-oil export growth and bank credit levels, which have slowly been inching up. The research expects growth in the non-oil private and government sectors to accelerate to 4.4% and 4.6% respectively in 2010. And driven by rising crude production, it expects the oil sector to grow at 2.5% this year as against a 6.7% contraction last year.
In contrast, developed economies have come under pressure as confirmed by a recent bout of negative surprises in global economic indicators. Economic data for the month of August has been disappointing, signalling a slowing in growth and raising concerns about ongoing economic recovery. Growth in the US has slowed significantly, indicators from Japan have been negative and, although, second quarter growth in Europe was strong, the report notes that it is unlikely to be sustained at second-quarter levels going forward due to the austerity measures coming into play.
Soft economic data has had negative implications on world stock markets and crude oil prices. However, the report believes that the global economy will be able to skirt recessionary trends due to expected policy action from central banks and finance ministries in the developed world in addition to the positive influence of growth from emerging markets.
Looking across the rest of the GCC economies, some mixed results and indicators have been reported for the various Gulf states. The report highlighted as significant the recent downgrading of Bahrain's sovereign debt ratings by Moody's to A3 from A2 due to a high fiscal deficit and a rising breakeven oil price for balancing the budget. In Qatar, the central bank reduced overnight deposit rates to 1.5% from 2%. In Oman, the government budget surplus surged to OMR725 million in H1 2010. Interbank interest rates in the UAE remain at an elevated level whereas inflation decelerated in July. Inflation came down to 0.86% year-on-year in July largely due to falling rents. In Kuwait, the Cabinet of Ministers has allowed banks to finance a massive proposed development project set to transform the Kuwait economy into a new business hub.
Commenting on the report, Dr. Saleh Alsuhaibani, Head of Research at Al Rajhi Capital, said: "We continue to look for new ways to add value to the investment strategies of the individuals and corporates we serve and are pleased to extend our coverage of the Saudi market with this comprehensive report. We are committed to ensuring that our clients have access to the latest news and analysis on global and regional markets and fully understand how economic trends and market movements can impact their businesses and portfolios. We are delighted to launch this new research product, which is the first of a series of monthly economic reports looking at these issues, alongside the in-depth sector and company reports already being issued by Al Rajhi Capital's market-leading research department."
