Saudi Arabia Macro and Equity Market: Improving Economic Performance but New Challenges Ahead

The passing-away of King Abdullah ben Abdel Aziz was undeniably the most prominent event in the Kingdom of Saudi Arabia. The throne is now in the hands of king Abdullah’s half-brother, Crown Prince Salman which designated Prince Mohammed bin Nayef as second deputy prime minister and second-in line to the throne. The new king has also appointed one of his sons, Prince Mohammed Bin Salman, as minister of defense and chief of the royal court, the youngest Saudi to take control of such high-rank positions.

Saudi Arabia Macro and Equity Market: Improving Economic Performance but New Challenges Ahead                     Saudi Arabia Macro and Equity Market: Improving Economic Performance but New Challenges Ahead

According to the Central Department of Statistics, the kingdom’s real GDP growth reached 3.59% in 2014, a faster growth than the 2.67% recorded the previous year. The nominal GDP totaled $752.46B in 2014 making the nominal GDP per capita stand at $24,454.  The real contribution of the non-oil sector to overall GDP stood at 56.5%, outweighing the 42.7% contribution by the oil sector. The non-oil sector’s real growth of 5.07% also outpaced the real growth of the oil sector which stood at 1.72%.

Overall demand and all of its components were robust in 2014. In nominal terms, overall demand grew by 8.58% to reach $636.90B in 2014. The final private consumption was the largest component of demand, accounting for 37% followed by 32% for capital formation and 31% for the government’s final consumption. The government’s final consumption grew the most by 17.99% to $197.76B, followed by a 6.60% growth in final private consumption to $238.43B and a 2.76% growth in capital formation to $200.71B.

Inflation, which was a concern in 2013, is no longer one in 2014. Official sources put the annual inflation of 2014 at 2.7%, lower than the 3.5% recorded in 2013. This was mainly due to decelerations in the prices of food and beverages and rental inflation, the two biggest components in the overall Consumer Price Index (CPI).

The international slump in oil prices pulled the Kingdom’s exports down by 6.21% to $363.55B in 2014. Exports of petroleum products, accounting for 81% of total exports, slid 8.97% to reach $293.02B in 2014. Meanwhile, exports of non-petroleum goods, representing 16% of the total, grew by 7.79% to $58.29B.

However, with internal demand standing strong, total imports registered a growth of 7.87% to $248B. Imports of goods registered a minor 1.35% yearly uptick to $170.43B while the value of imported services registered a double-digit growth of 25.63% to reach $77.57B.

 

In light of the rapid decline in oil prices to all-time lows, the fiscal front is where concerns were the most pronounced for Saudi Arabia. Unlike previous budget estimates, the recently proposed 2015 budget does not rely on a highly conservative oil price assumption but rather on an oil price of around $60, higher than current levels. Spending was put at $229.3B, a mere 0.6% uptick from the level of 2014, while revenues were estimated at $190.7B. These figures mean the Kingdom will indeed face the largest deficit yet of $38.6B after oil prices were slashed by more than half since June 2014. The authorities’ answer to this major development is tapping into the central bank’s (SAMA) ample reserves of $732.35B in 2014. However, these reserves were also hit by lower oil revenues as they registered a 1% y-o-y growth in 2014, the slowest advance in four years.

Independently from the slump in oil prices, lending activity remained strong in 2014. According to the Central Bank, loans to the private sector continued their double-digit improvement, growing by 12% to $334.99B in 2014. Loans to the public sector (composed of bank credit to public sector enterprises and government bonds) increased by a yearly 6% to $26.39B. The lending environment was indeed favorable as the 3-months Saudi Interbank Offered Rate (SIBOR) dropped from 0.9532 in 2013 to 0.9358 in 2014.

The Tadawul Stock Index ended the year 2014 at 8,333.30 points compared to 8,535.60 points last year. The total Market Capitalization at the end of the year 2014 increased by 3.42% to reach $483.44B. The volume of traded shares amounted to 70.80B higher than the volume of 53.53B traded in 2013. As for the value of traded shares, it rose by 56.72% to reach $572.41B in 2014.

According to Tadawul’s annual bulletin, six companies offered part of their shares as initial public offerings during the year in the sectors of Banks & financial Services, Cement, Retail, Building & Construction and Hotel & Tourism. With these activities, the total number of listed companies reached 169. The value of newly offered shares on the Tadawul Stock Exchange totaled $6.73B while their volume reached 587.50M.

 

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