Saudi Arabia Business Forecast Report Q2 2009

Publication Date	March 2009
Publisher	Business Monitor
Product Type	Report
Pages	70
ISBN Number	1745-0683
Product Code	BMI03523

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Summary

Oil Forecasts Down Again... But No Disaster

Economic risks are the main threat to stability in Saudi Arabia as we move into 2009, with a rise in unemployment and a decline in living standards having the potential to destabilise the Kingdom. The good times are certainly over: Q209 brings a new downward revision to our average OPEC Basket price forecast, with our projections having dropped to US$39.50/bbl for 2009 and US$43.50/bbl for 2010. However, this will not be a macroeconomic disaster for the Kingdom, and in the absence of any evidence of unrest so far, either in the way of terrorism or industrial action, our core scenario remains one of broad stability.

On the economic front, Saudi Arabia will remain relatively stable, albeit witnessing negative growth in private consumption and exports, as well as a budget deficit, this year. However, Saudi Arabia's demographics will work in its favour, relative to some of its neighbours: a large and growing domestic population means solid demand for goods, services, housing and infrastructure. From 2010, we see a gradual recovery in global growth and oil prices, and expect a return to surplus. The current account will remain in surplus throughout our ten year forecast period.

Politically, we do not see any major challenges to the rule of the House of Saudi over the forecast period. A drop in living standards and rise in unemployment could hurt sentiment towards the government, with a return of the terrorist threat being the worst case scenario, but we expect the authorities to maintain high levels of spending to keep this risk at bay. Although positive, the recent cabinet reshuffle which led to the appointment of the Kingdom's first ever female minister has only limited implications for the level of democratic freedoms.

Investors have recognised Saudi Arabia's long-term potential over recent years and will continue to do so, once risk appetite picks up again. In 2007, FDI stocks amounted to 30.1% of GDP according to UNCTAD - putting the Kingdom second in the GCC region after next-door neighbour Bahrain, and far ahead of Oman (15.7%), Qatar (10.7%) and Kuwait (0.8%). The government has used the boom period wisely, and Saudi Arabia is now ranked an impressive 16th in the World Bank's Ease of Doing Business index, up from 67th in 2004. Amr al-Dabbagh, governor of the Saudi Arabia General Investment Agency, told the Financial Times recently that the government was aiming to be in the top ten.

Content

Executive Summary
- Oil Forecasts Down Again... But No Disaster
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Living Standards To Fall, Risks To Stability
- The economic decline could fuel public dissatisfaction, and limited moves towards reform will do little to appease
- the population.
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Demographics And Sovereign Wealth To Save The Day
- Government spending and domestic demand will just about keep the Saudi economy afloat this year and in 2010, but
- there are downside risks.
- Balance Of Payments
- Sharp C/A Shrinkage As Exports Plummet
- The trends of the last few years will be curtailed as export revenues plummet, import demand slows and investment in
- foreign assets tails off. However, the current account will remain in surplus throughout the forecast period.
- Fiscal Policy
- 2009 Budget: A Closer Look
- 2009 will be a bad year for the Saudi fiscus, as revenues plunge and expenditure grows. However, at just under 5% of GDP,
- this will not be the end of the world, and spending Sov. Wealth Fund cash could make the shortfall even smaller.
- Regional Exchange Rate Policy
- GCC Single Currency: Still Sceptical
- In spite of increased talk about the GCC single currency, we remain sceptical that the five remaining candidate states can
- meet their own macroeconomic targets in order to launch the unit next year.
Chapter 3: 10-Year Forecast
- The Saudi Economy To 2018
- Politics Main Risk To Long-Term Outlook
- Assuming the survival of the current form of government into the medium term, we see ongoing strong growth and asset
- accumulation via real expansion in investment and exports, amid still historically high oil prices.
Chapter 4: Special Report
- China
- A Seismic Upheaval In 2009?
- One of the biggest - and least discussed - 'wild cards' that could rear its head in 2009 is dramatic political upheaval in China.
- United States
- Europe
- Big Trouble For European Banks In 2009
- The deteriorating global macroeconomic outlook, high levels of leverage, and a broken business model will combine to
- spell trouble for the financial services sector in 2009.
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Orientation
- Operational Risk
Chapter 6: Key Sectors
- Oil & Gas
- Freight Transport
Chapter 7: BMI Global Assumptions
- Global
- Economic Activity
- Monetary Policy
- Commodities
List of Tables
- Table: Saudi Arabia Political Overview
- Table: ECONOMIC ACTIVITY
- Table: BALANCE OF PAYMENTS
- Table: FISCAL POLICY
- Table: Long-Term Macroeconomic Forecasts
- Table: Banks' Leverage Ratios
- Table: Assets As % of Home Country GDP
- Table: Assets As % of Home Country GDP When Eurozone Is Considered 'Home Country'
- Table: Exposure As % of Tot al Exposure To Region
- Table: Banks' Foreign Exposure (US$ mn)
- Table: Exposure As % of National GDP
- Table: BMI BUSINESS AND OPERATIONAL RISK RATINGS
- Table: BMI LEGAL FRAMEWORK RATINGS
- Table: Middle East & Africa Annual FDI Inflows
- Table: BMI TRADE RATINGS
- Table: Top Export Destinations
- Table: Saudi Arabia Oil & Gas - Historical Data & Forecasts
- Table: Saudi Arabia's Freight Transport Industry Forecast Scenario, 2005-2012
- Table: Global Assumptions
- Table: GLOBAL AND REGIONAL REAL GDP GROWTH, % chg y-o-y
- Table: Developed States, Real GDP Growth Forecasts
- Table: Emerging Markets, Real GDP Growth Forecasts
- Table: DEVELOPED MARKET EXCHANGE RATES
- Table: EMERGING MARKET EXCHANGE RATES