You are not going to believe thisJuly 1, 2015 9:22
Saudi economic growth slows, inflation hits 3-year low
Real GDP +5.5 pct in Q2 vs +5.9 pct in Q1; Growth in oil output eases, non-oil holds up; Inflation slows to 3.8 pct y/y in Aug from 4.0 pct in July; Food prices rise, rental pressures ease
September 13, 2012 9:57 by Reuters
Saudi Arabia’s annual economic growth slowed to 5.5 percent in the second quarter as expansion of its backbone oil sector weakened, while inflation eased to a near three-year low in August, data showed on Wednesday.
Growth in the world’s top crude exporter eased from 5.9 percent in January-March and from a 7.8 percent expansion in the second quarter of last year, data from the Central Department of Statistics showed.
Abdulwahab Abu Dahesh, an independent Saudi economist, expects the economic slowdown to continue.
“GDP growth will be slower toward the end of the year due to the slowdown in the global economy and the decline in oil production levels in Saudi Arabia. It seems the second half will be slower than the first half,” Dahesh said.
Partly in response to unrest in the Arab world, Saudi Arabia boosted spending to a record 804 billion riyals ($214 billion) in 2011, 39 percent more than initially planned and 23 percent higher than in 2010, its fastest growth in a decade.
In May, Finance Minister Ibrahim Alassaf said there might be a bit of extra spending this year, adding that the kingdom’s fiscal position was comfortable.
Output growth in the oil sector, which accounts for more than half of the top Arab economy’s gross domestic product, slowed to 5.8 percent in real terms in the first quarter from 7.2 percent in the previous three months, the data showed.
The slowdown in the non-oil sector was much more moderate with annual growth of 5.5 percent in April-June down slightly from 5.7 percent in the first quarter.
“Last year, there was heavy government spending in housing and an increase in wages in the first two quarters which was not there this year,” said Dahesh.
“Also oil prices this year are less than they were at the same time last year and production did not increase much either this year,” he said.
Oil prices fell as far as $88 per barrel in late June from a March peak of around $128 on worries about weak global growth and recession in the debt crisis-hit euro zone. However, they have rebounded since then to above $115 currently.
Finance Minister Alassaf said in August that the government had no reason to change its 2012 economic growth forecast of 5.9 percent. A Reuters poll in July predicted Saudi GDP growth to ease to 5.2 percent in 2012 from 7.1 percent last year.
Annual inflation in the OPEC member decelerated to 3.8 percent in August, its lowest level since October 2009, although the monthly increase was the fastest in 10 months, separate statistics office data also showed on Wednesday.
Consumer price growth in the desert kingdom has been slowing gradually since peaking at 5.4 percent in February and March, registering 4.0 percent in July. The month-on-month rate edged up to 0.4 percent in August from 0.3 percent in July.
“Over the past year … what had been driving inflation up slowed down,” said Jarmo Kotilaine, an economist based in Saudi Arabia, who is covering the region. “There were no major harvest failures.
“This summer that changed due to droughts around the world and the positive dynamics will last for a little but not for long,” he added.
Food costs, which account for a quarter of Saudi expenses, rose 0.9 percent in August, the fastest clip in a year.
Monthly growth in rents, a prime factor pushing up living costs in recent years, eased slightly to 0.1 percent in August, which was the smallest rise since December 2007.
On an annual basis, rental inflation decelerated to a 14-month low of 8.5 percent from 9.2 percent in July, the data showed, well below rates of over 20 percent in 2009 and 2008.
Last year, the government promised to build half a million new homes to ease a housing shortage. In July, it passed a mortgage law to stimulate house building, but analysts say high land prices may prevent any quick resolution to the problem.
“The rate of inflation will depend on how fast international food prices are rising,” said Fahad Alturki, senior economist at Jadwa Investment in Riyadh, adding that a gradual decline in renovation and rents will work in the opposite direction.
“In addition, the expectation of another round of quantitative easing (in the United States) is likely to weaken the dollar which may help push domestic inflation,” he said.
(Writing by Martin Dokoupil in Dubai; Editing by Susan Fenton)