How US attacks impact the Saudi economy

Saudi American Bank has published a report for its clients outlining the economic impact of the terrorist attacks in the United States on the Kingdom's economy.

It concludes that the effect on the remainder of 2001 will be modest, but for 2002 there will now be weaker performance due mainly to a decline in oil revenues. Samba forecasts a $10 billion decline in oil revenues next year to $56 billion for 2002.

This will leave GDP growth flat for the year, a budget deficit of $5 billion on a three per cent rise in spending, a $4 billion current account deficit, no inflation and a stable riyal-dollar exchange rate.

On the postive side, Samba chief economist Brad Bourland notes that interest rates are declining rapidly in line with US rates, and that foreign exchange rates have not been affected much since September 11.

However, Saudi high net worth individuals have probably seen an aggregate decline in asset values of about $50 billion in the third quarter because of their exposure to local and international stock markets. In addition, Mr Bourland points out that the momentum of foreign inward investment into the Kingdom will probably now slow down, although $10 billion worth of new foreign investment has been approved in the past 17 months.

So overall Samba has decided to lower its previous forecast of one per cent growth in the Kingdom for 2002 to a no growth scenario. Although the bank does allow that GDP growth may range from +2.5 to -3.0% - depending on how the oil market moves in the year.