2002 a difficult year for Saudi Arabia

The latest economic forecast for Saudi Arabia from respected Saudi American Bank chief economist Brad Bourland predicts a two per cent fall in real GDP for 2002.

This decline in GDP follows an estimated 1.5 per cent increase in GDP during 2001, down from 4.5 per cent in the year 2000. To blame is the fact that Saudi Arabia started 2002 with its lowest oil output for a decade of seven million barrels per day.

Mr Bourland says that the picture for 2002 is clearer now that oil prices appear to have stabilized around $20 a barrel, and that US economic data points to a recovery in the second half. He also notes that the path to economic reform aimed at increasing private sector growth has not been significantly disrupted by recent world developments.

Indeed, the non-oil private sector remains a bright spot and has held up remarkably well in the Kingdom, and will probably continue to do so through 2002. This was reflected in a 7.6 per cent rise in the value of the Saudi stock market in 2001, against the background of a dismal year for global markets.

The Samba report notes that the economic reform program has been gathering momentum since the establishment of the supreme economic council in August 1999, and its' most recent manifestation was a decision by the GCC states to speed up tariff harmonization to 2003. And a whole raft of legal, capital market and privatization measures are in progress, as well as the now celebrated opening of the gas sector to foreign ownership.

However, Samba thinks that the events of September 11 will dampen foreign investment into the Kingdom as this will now be a harder sell. The bank is also concerned about the level of government debt, but notes that this is counterbalanced by the $82.8 billion held in foreign assets by the government (a newly released statistic from the Saudi Arabian Monetary Agency).

In an interesting aside, the report points out that the age profile of the Saudi population is entering a stage that favors personal loans and home mortgages, and that this profile is mildly bullish for consumer spending over the next 15 years. This is an often ignored aspect of the Saudi population profile.