Source: Riyad Bank
The Saudi economy remains strong and is set to show robust growth for the year even as new strains have appeared in the global economy.
Among the key drivers, global oil prices have remained surprisingly strong, despite a slow and weak global recovery, and contributed significantly to Saudi Arabia economic strength.
A slow but still unsure recovery in bank credit to the private sector has been another factor supporting domestic growth.
Consumer spending has remained strong as has been domestic investment, particularly, by the government in infrastructure.
Saudi fiscal policy has been extremely supportive of the economy as the latest budget release indicates. Actual expenditure in 2010 was SR86.5 billion higher than originally budgeted at a new historical record of SR626.5 billion. This was supported by an extraordinary increase in government revenues to SR735 billion compared to the original budget projection of SR470 billion.
As a result, the government budget turned in a surplus of SR108.5 billion, which was almost 69% higher than our forecast of SR64 billion. It is notable that the government had originally estimated a deficit of SR70 billion.
As a result of the stimulatory budget, real GDP grew by 3.8% in 2010, according to the government budget statement, compared to our forecast of 3.6%.
Monetary policy has remained supportive although, money supply has been stubbornly resistant to growth, due primarily to low banking sector appetite for lending and the erosion of deposits away from banks into real estate and other financial assets.
SAMA’s foreign reserves remain healthy and growing, reflecting not only the Kingdom’s monetary policy but also the inflow of foreign capital from advanced economies.