Saudi Arabia

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Date Submitted: 03/12/2011 11:29 PM

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January 2011

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Saudi Arabia: Baseline Forecast 2011-13

Executive Summary  The global economic recovery gathered pace during the course of 2010, led by a strong performance from emerging markets and a gradual recovery in activity in some OECD countries. We expect the pace of growth to moderate slightly in 2011 as policy tightening in some EMs and fiscal retrenchment in much of the eurozone offset the impact of further fiscal stimulus in the US. The pace of global growth should pick up again in 2012, though large structural constraints in much of the OECD (particularly public debt overhangs) will continue to weigh. Oil prices will broadly follow this trend, though there will be additional support from financial markets, which appear untroubled by a large overhang of global crude stocks. We therefore anticipate an average for WTI of $85/barrel in 2011, climbing to $95/b by 2013. Nevertheless, the path of oil prices is far from clear-cut: OPEC production discipline may need to be tightened to offset the impact of still-brittle demand and additional non-OPEC output. Saudi Arabia’s economic recovery is well entrenched and we expect growth of 4.3 percent in 2011, following last year’s 3.8 percent expansion. Oil production is likely to increase only slightly this year (though there is upside risk here) but the nonoil economy will be supported by still-strong government spending, much firmer private consumption, and the beginnings of a recovery in private investment. With nonoil export markets also improving, we expect real GDP growth to exceed 5 percent by 2013. The fiscal and external positions are expected to remain comfortable. Much of the public investment surge is being undertaken by state-owned firms, rather than the central government directly, and with oil prices tracking higher we think the central government will record decent surpluses averaging around 5.5 percent of GDP in 2011-13. The general government position is a matter of conjecture...