NCB releases Saudi Economic Perspectives Report 2009

The report lays out a detailed analysis conducted by NCB's panel of economists who assessed the performance of the Saudi economy this year, on a macro and micro levels, by reading and interpreting the financial indicators and parameters and the extent to which this performance was impacted by the turbulence in the global economy amidst the current financial crisis.

The study highlights the global economic factors that uncovered the points of strength and weakness in the Saudi economy, and projects an overview of the economic outlook next year and the risks and opportunities speculated in growth.

The report summarizes that although Saudi Arabia has been less affected by the direct impact of the crisis, the indirect impact on the real economy was significant, expecting that Saudi Arabia will see real GDP growth contract by 1% in 2009, as the shortfall in the oil sector offsets moderating growth in the non-oil sector.

The report explains the three main channels through which the crisis has crept to reach the local economy. First, the steep fall in crude oil prices has reduced the dominant source of government revenues. Second was the weaker global demand that has motivated OPEC to cut oil production and third the tighter credit and increased risk aversion in international markets which have led to a shortage of foreign capital, massive declines in local asset prices and lower investment.

Commenting on the findings of the report, Dr. Saeed Al-Sheikh, Senior Vice President and Chief Economic in the National Commercial Bank, said:

"Government investment expenditure will remain the key driver of growth in Saudi Arabia. This is based on aggressive fiscal policy plans emphasizing capital expenditure as well as indirect fiscal stimulus measures to support the non-oil sector. With large accumulated reserves and low levels of domestic debt, we believe that Saudi Arabia will be able to spend its way out of the crisis."

On her part, Perihan Al-Husseini, Senior Economist in NCB, said, "SAMA has been very proactive in loosening monetary policy and ensuring that liquidity is available. Saudi interbank rates have fallen and deposits are now growing faster than lending, which has brought down the loan-to-deposit ratio to 77%. Meanwhile, private sector credit growth is still sluggish, due to lower investment demand and tighter bank lending."

Dr. Al-Sheikh pointed out that the Kingdom sees light at the end of the tunnel and will eventually emerge from it, indicating that the confidence levels have improved significantly over the past two months with rising oil prices and relative calm in international financial markets. He expected real GDP growth to increase to 3% in 2010, based on a recovery in global demand and a higher oil production level.

Pertaining to the challenges and possible hurdles that the report speculated, Perihan Al-Husseini stated, "There are two prominent risks to our optimistic outlook in 2010. First, if the global demand remains weak, rising inventory and excess refining capacity will likely keep oil prices low for a prolonged period. This will incapacitate the government's ability to increase expenditure and erode confidence levels. Second, a marked deterioration in banks' balance sheets will weaken the banking sector's role in financing private investment expenditure plans and support economic growth."