Business & Finance Club - Riyadh : The Saudi economy is set to register a healthy 3.9 per cent growth rate this year with a budget surplus of SR40 billion ($10.6 billion) against a projected deficit of SR70 billion ($18.7 billion).

The investment-banking unit of Al Rajhi Bank pointed out that with strong economic fundamentals in Saudi, the impact of slowdown was likely to be limited. Notwithstanding the recent headwinds from developed markets, economy has gained traction, it added.

In its “Economics Monthly,” report for September, Al Rajhi Capital examined the Saudi economy and the implications of global and regional market trends on the Kingdom, which remains the region’s largest market.

The inflation in the Kingdom is likely to be moderate with an anticipated decline to 5.5 per cent at the end of the year from current level of 6 per cent, Al Rajhi Capital said in the first of a series of monthly reports.

There continues to be a positive scenario for emerging markets with ongoing growth led by China and India, it added.

The report stated that robust economic growth from the developing markets is expected to continue, albeit at slightly moderating levels in the months ahead. 'Despite global stock markets remaining under pressure in the near term, emerging economies will be less affected,' it said.

According to the report, this positive outlook is supported by robust non-oil export growth and bank credit levels, which have slowly been inching up.

Looking across the rest of the GCC economies, some mixed results and indicators have been reported for the various Gulf states, said Al Rajhi in its monthly report.

The report highlighted as significant the recent downgrading of Bahrain’s sovereign debt ratings by Moody’s to A3 from A2 due to a high fiscal deficit and a rising breakeven oil price for balancing the budget.

'In Qatar, the central bank reduced overnight deposit rates to 1.5 per cent from 2 per cent. In Oman, the government budget surplus surged to RO725 million in the first half of 2010.'

'The Interbank interest rates in the UAE remain at an elevated level whereas inflation decelerated in July. Inflation came down to 0.86 per cent year-on-year in July largely due to falling rents,' the report said.

'In Kuwait, the cabinet of ministers has allowed banks to finance a massive proposed development project set to transform the Kuwait economy into a new business hub,' it added.

Al Rajhi said it expected growth in the non-oil private and government sectors to accelerate to 4.4 per cent and 4.6 per cent respectively in 2010. And driven by rising crude production, it expected the oil sector to grow at 2.5 per cent this year as against a 6.7 per cent contraction last year.
 
'In contrast, developed economies have come under pressure as confirmed by a recent bout of negative surprises in global economic indicators. Economic data for August has been disappointing, signaling a slowing in growth and raising concerns about ongoing economic recovery,' the report pointed out.

'The growth in the US has slowed significantly, indicators from Japan have been negative and, although, second quarter growth in Europe was strong,' the report noted.

'It is unlikely to be sustained at second-quarter levels going forward due to the austerity measures coming into play,' it added.

Soft economic data has had negative implications on world stock markets and crude oil prices. However, the report believes that the global economy will be able to skirt recessionary trends due to expected policy action from central banks and finance ministries in the developed world in addition to the positive influence of growth from emerging markets. 

Commenting on the report, Dr Saleh Alsuhaibani, head of Research at Al Rajhi Capital, said: “We continue to look for new ways to add value to the investment strategies of the individuals and corporates we serve and are pleased to extend our coverage of the Saudi market with this comprehensive report.'

'We are committed to ensuring that our clients have access to the latest news and analysis on global and regional markets and fully understand how economic trends and market movements can impact their businesses and portfolios,' Dr Alsuhaibani noted.

'We are delighted to launch this new research product, which is the first of a series of monthly economic reports looking at these issues, alongside the in-depth sector and company reports already being issued by Al Rajhi Capital’s market-leading research department,' he added.-