By Karen Leigh
Spikes in oil prices and private bank credit help kingdom avoid worst of Egypt fallout, says report
Saudi Arabia’s economic recovery is slowly continuing with the country’s Monetary Agency adding SR25bn ($6.66bn) to its foreign assets in December as oil prices rallied to $89 a barrel.
“Foreign assets have finished 2010 at $440.4bn or equal to 101 percent of the country’s GDP,” said a report from Banque Saudi Fransi.
In addition the central bank’s foreign assets now total SR1.65 trillion ($439.97bn), up 8.7 percent from year-end 2009.
Total bank claims on the private sector fell slightly in December from November levels to SR776bn ($206.92bn)– but the figure still indicates a 5.7 percent rise on the previous year.
In addition, private bank credit, excluding securities, grew at its fastest rate in eighteen months. Money supply growth also accelerated, with M2 recording its highest growth of 2010.
“Saudi Arabia’s economic recovery is moving at a slow but respectable pace. Public sector credit growth also accelerated in December to 14.8 percent year on year, reflecting the fact that state-linked entities are really driving the recovery process,” said the report from Banque Saudi Fransi. “Government sector GDP expanded 5.9 percent last year, the fastest growth of any sector.”
Monetary indicators also looked positive, with money supply growth accelerating as deposits grew 4.7 percent and private bank credit 4.8 percent, their highest in eighteen months.
“The consistent rise in oil prices in recent months as well as evidence that energy demand growth is picking up in Asia have supported Saudi Arabia's economic outlook,” BSF said.
Growing oil demand should help Saudi’s economy ride out the tidal wave of fallout from political unrest in North Africa, which has brought Egypt’s economy to a near standstill.
“The country has raised oil output to meet demand and progress continues on numerous strategic projects in infrastructure, energy and utilities. Political turmoil and uncertainty in Egypt, which threatens to spread into a number of Middle East countries, may lead to economic ripple effects across the region, although at this stage it appears unlikely developments will constrain the kingdom’s economic performance or adversely impact its banks,” BSF said.
Credit – which crashed throughout the Gulf in 2008 and has slowly been shaking off the last vestiges of the credit crunch – will also continue its comeback in Saudi.
“Credit growth trends look healthy. Banks should begin to shrug off risk aversion and revive credit growth to 9.1 percent this year, with a return to double-digit growth in 2011.”
While other economies in MENA are feeling the effects of Egypt’s economic crisis, foreign assets and investment in foreign security is a big factor in Saudi’s growth.
“The state’s investments in foreign securities – which comprise long-term, low-risk investments such as bonds – rose 10.3 percent in December while deposits with banks abroad advanced 2.4 percent, the slowest pace of growth since March. Banks also appear to be drawing down their foreign assets, perhaps as they prepare to boost loan growth this year to help improve profit growth, which has lagged for a few years,” BSF said.