Saudi Arabia economy: Real GDP growth accelerates to 4.7% in fourth quarter
Newly released real GDP data from the Central Department of Statistics and Information (CDSI) have revealed that the pace of economic growth accelerated to 4.7%, year on year in the fourth quarter of 2013-its fastest rate since the third quarter of 2012. With earlier quarters also revised up, the annual rate of growth thus surpassed expectations, reaching 3.8% last year. However, the acceleration largely came on the back of an upturn in the oil sector, once more raising questions about the potential of the non-oil sector to become the primary the motor of the kingdom's economy.
According to the CDSI data (which was provided solely on a sectoral basis), real GDP growth strengthened significantly in the second half of last year, growing by a quarterly average of 4.4%, compared with 3.1% in the first half. However, this was a reflection of a marked turnaround in the oil sector, which had contracted in the first half of the year on the back of lower oil production (as rising US and Iraqi oil output, and softer global demand, prompted the kingdom to reduce its output). With Saudi Arabia stepping in for disrupted Libyan oil exports in the second half of 2013, however, oil output surged from an average of 9.4m barrels/day (b/d) in the first six months of 2013 to over 9.9m b/d (albeit, at 9.67m b/d, the annual average was still slightly below the 2012 level). As a result, having contracted by almost 5% in the first half of last year, the oil sector component of real GDP expanded by 4.6% year on year in the final quarter.
Non-oil private sector seemingly coping with visa crackdown
The non-oil sector put in a less stellar performance in the fourth quarter, although this in part reflects a sharp slowdown in the typically volatile non-oil government sector (which expanded by a little over 2%, compared with over 5% in the first half of the year). In contrast, growth in the non-oil private sector accelerated, allowing the overall non-oil sector to expand by 4.8% in the fourth quarter. For the year as a whole, the annual growth rate for the non-oil sector was relatively robust, at just over 5%, although it still marks a considerable slowdown from the outperformance of earlier years: the non-oil sector expanded by 8% and 5.8% in 2011 and 2012, respectively, on the back of massive fiscal stimulus.
The relatively healthy rate of growth overall eases concerns that the massive crackdown on expatriates with invalid visas in 2013 had a negative impact on the overall economy. Although domestic demand will no doubt have been depressed by the departure of over 1m foreigners during the year, it was notable that even those sectors especially reliant on foreign workers, such as hotels and restaurants and manufacturing, still managed to put in a relatively strong performance in the fourth quarter, growing by 5% and 4.5% year on year, respectively. Equally, the retail sector has also seemingly managed to cope with the departure of so many foreigners, with data from the Saudi Arabian Monetary Agency (SAMA) indicating that the value of point-of-sale transactions (a useful proxy for consumer demand) rose by 12.4% year on year in the fourth quarter of 2013. However, it would be wrong to overlook the negative impact on business of the visa crackdown completely: in a particularly striking example, in March, Fahad al-Hamadi at the Saudi Chamber of Commerce claimed that more than 50% of small and medium-sized contracting firms had closed since November.
The economy will have to rely less on the government in 2014
Overall, the combined real GDP growth rate of 3.8% considerably passed our own estimate of 2.9%, although this stemmed from the CDSI's large upward revisions to non-oil sector output in earlier quarters. In 2014 we expect that the improved performance evident in the second half of last year will be maintained, as the impact of the massive outflow of expatriates in 2013 dissipates and oil production remains robust (according to the Paris-based International Energy Agency, Saudi oil output was 3.6% higher, year on year, in the first quarter of this year, despite a sharp decline in March). This should be sufficient to push real GDP growth slightly higher to 4.1% this year, although this is far below the stimulus-fuelled growth rates seen in 2011 and 2012. Nonetheless, it is worth noting that after several years of expansionary state spending, the government passed a considerably more austere budget for this year (total spending is budgeted to rise by just 4.3% in 2014, compared with increases of 17% in 2013 and 19% in 2012). With that in mind, 2014 should provide a revealing insight into the country's future growth potential, as the economy begins its process of rebalancing away from the government.
Source: EIU Views Wire, April 2014