Saudi Arabia will face “a moderate business cycle during 2015 and 2016, growing around 3% in real terms,” Saudi Arabia’s National Commercial Bank (NCB) finds in a recently released study.
The study, entitled “Saudi Economic Perspectives 2015-2016” with the theme of “Tackling Challenges on Solid Ground,” finds less contribution from the oil sector and moderation in the non-oil sector, according to the Saudi Gazette.
“We project real GDP growth of 3.4% for 2015 due mainly to the non-oil sector maintaining last year’s pace of around 5%. The series of royal decrees announced in January and April 2014 will provide favorable stimulus to the non-oil private sector, with the construction and retail sectors the key beneficiaries, especially from the bonus payment of two salaries to all public sector employees,” according to the NCB as reported in the Saudi Gazette.
A strong dollar, higher spending, and low oil prices have dented Saudi Arabia’s foreign assets and reserves. The Kingdom’s current account surplus fell to $81.2 billion in 2014. In April, net government accounts at SAMA declined for the sixth consecutive month, falling by $14.3 billion, month-on-month, according to Riyadh-based Jadwa Investment.
NCB predicts the price of oil will stabilize and that while the market is oversupplied, “the unraveling shale model” will cause U.S. suppliers to exit and the price to settle at $65/bbl.
“There is little doubt that oil markets are currently oversupplied, with demand dynamics and supply factors suppressing oil prices, a scenario that is expected to persist in the remainder of 1H 2014. Yet, the unraveling shale model and OPEC’s June meeting will be instrumental in shaping the landscape of oil markets during the second half of the year. We do believe that the market will balance as US crude production inflects to the downside, breaking the anomaly of lower rigs and higher production, as the shale oil business model faces tough economic realities. Hence, we see Arabian light prices protected at a floor of USD50/bbl and on average to settle at USD65/bbl in 2015. According to our estimates, Saudi crude oil production is expected to rise by an average of only 100 thousand b/d, reaching 9.8 MMBD.”
