Saudi Arabia: Positive Outlook

As promised last week, I will discuss the 2010 macro outlook of the major GCC countries. Since Saudi Arabia is the largest economy in the GCC, I will begin with it.

Overall, Saudi’s economy is improving due to the hike in oil prices which increased export revenues and market sentiment.

The CPI decreased sharply from 11.1% in July ‘08 to 3.4% in October ’09, mainly due to the recession and the reduction in imported inflation. Credit Suisse estimates the nominal GDP to return to pre-crises levels in 2010. The rise in nominal GPD is higher than the increase in inflation, thus, boosting real GDP growth to 2.6% in 2010 and 4.7% 2011. Also, the fiscal and current account balances are expected to grow at a rate of 12% and 19% respectively.

Looking at the chart above, Saudi Arabia has the highest net external assets/GDP ratio of 80%. This constitutes a 70% positive difference from the Global EM. It is estimated that Saudi’s foreign assets to be around USD395 billion in ’09 and will grow by 25% in ‘10. Moreover, Saudi is considered a low leveraged economy where the government debt accounts for only 15% of the GDP.

One of the strong drivers of growth in Saudi Arabia is the implementation of their government-spending plan. This plan is focused on infrastructure projects with 63% of the total budged expenditure allocated to such projects. According to Bloomberg, in 2009 the Saudi Arabian General Investment Authority (SAGIA) announced that they will execute a USD400 billion infrastructure projects spending spree over the next five years. This year Saudi announced a USD144 billion planned expenditure in their 2010 budget. Government spending accounts for 30% of the total GDP.

On the equities side, Tadawul All-Share index’s listed companies are expected to show an increase of 30% in their 2010 bottom lines which beats its GCC peers.

Having said all that, I believe that Saudi Arabia will show positive returns this year especially in the consumer and banking sector.

* username: rupertbu