Standard & Poor’s Expects Saudi Economy to Grow by 3.4%

Inflation in the Kingdom remains under control and is expected to reach 2.7% in 2023, according to S&P Global. (SPA)
Inflation in the Kingdom remains under control and is expected to reach 2.7% in 2023, according to S&P Global. (SPA)
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Standard & Poor’s Expects Saudi Economy to Grow by 3.4%

Inflation in the Kingdom remains under control and is expected to reach 2.7% in 2023, according to S&P Global. (SPA)
Inflation in the Kingdom remains under control and is expected to reach 2.7% in 2023, according to S&P Global. (SPA)

Standard & Poor’s (S&P) maintained its credit rating for Saudi Arabia in local and foreign currencies at A/A-1 with a stable outlook, which it attributed to its expectations of the continuation of the government’s reform agenda in developing the non-oil sector, in addition to efforts to manage public finances and preserve a balanced level of public debt.

The agency said that the Kingdom would likely achieve annual growth in the next three years at a rate of 3.4 percent, supported by the expected high demand for oil and the noticeable growth in the non-oil sector. It added that inflation in Saudi Arabia has remained largely under control, noting that it was expected to reach 2.7 percent in 2023, and an average 2.3 percent in 2024-2026.

In its report, Standard & Poor’s said its rating is based on the country’s sustainable reform momentum in recent years, which included measures to enhance non-oil economic growth, supported by non-oil investments led by the Public Investment Fund (PIF), the expansion the non-oil tax base, and the large social liberalization.

“Reforms in the past few years, including measures to drive non-oil economic growth and widen the non-oil tax base, alongside significant social liberalization, should continue to improve Saudi Arabia’s economic and fiscal profile,” said S&P Global in the report.

The agency, however, said the Kingdom is expected to achieve a 0.2 percent growth in its gross domestic product for the current year, as a result of global economic conditions, including a slow recovery in China, which led to weak global oil demand in late 2022 and early 2023. On the other hand, it stressed that this decline in production is partially compensated for by the strong growth of non-oil GDP.

The S&P Global report pointed to Saudi Arabia’s continued efforts in recent years and its structural improvements that supported the sustainable development of the non-oil sector. It added that the Kingdom’s prudent management of public finances and maintaining a balanced public debt level have also contributed to this rating.

Standard & Poor’s expected the budget to return to achieving surpluses averaging 1 percent of GDP between 2024 and 2026 after a deficit in 2023, due to the reduction in oil production. It also said the total general government debt is likely to reach an average of 25 percent of GDP in 2023-2026.



World Bank Downgrades Middle East Growth Forecast for 2024 to 2.8%

Palestinian boys play football surrounded by the rubble of buildings destroyed during previous Israeli bombardment, in Gaza City on June 10, 2024, amid the ongoing conflict between Israel and Hamas (AFP)
Palestinian boys play football surrounded by the rubble of buildings destroyed during previous Israeli bombardment, in Gaza City on June 10, 2024, amid the ongoing conflict between Israel and Hamas (AFP)
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World Bank Downgrades Middle East Growth Forecast for 2024 to 2.8%

Palestinian boys play football surrounded by the rubble of buildings destroyed during previous Israeli bombardment, in Gaza City on June 10, 2024, amid the ongoing conflict between Israel and Hamas (AFP)
Palestinian boys play football surrounded by the rubble of buildings destroyed during previous Israeli bombardment, in Gaza City on June 10, 2024, amid the ongoing conflict between Israel and Hamas (AFP)

The global economy is expected to stabilize for the first time in three years in 2024 but at a level that is weak by recent historical standards, according to the World Bank’s latest Global Economic Prospects report released on Tuesday.

Global growth is projected to hold steady at 2.6% in 2024 before edging up to an average of 2.7% in 2025-26, well below the 3.1% average in the decade before COVID-19, the report said.

The bank's latest outlook marks an increase from the 2.4% growth for 2024 it had predicted in January.

Concerning growth in the Middle East, the World Bank downgraded its forecast from 3.5% to 2.8% in 2024, reflecting the extensions of oil production cuts and the ongoing conflict in the region.

However, growth is expected to pick up to 4.2% in 2025, it said.

The forecast implies that over the course of 2024-26 countries that collectively account for more than 80% of the world’s population and global GDP would still be growing more slowly than they did in the decade before COVID-19.

Overall, developing economies are projected to grow 4% on average over 2024-25, slightly slower than in 2023.

Growth in low-income economies is expected to accelerate to 5% in 2024 from 3.8% in 2023.

However, the forecasts for 2024 growth reflect downgrades in three out of every four low-income economies since January.

In advanced economies, growth is set to remain steady at 1.5% in 2024 before rising to 1.7% in 2025.

The report also said that global inflation is expected to moderate to 3.5% in 2024 and 2.9% in 2025, but the pace of decline is slower than was projected just six months ago.

Many central banks, as a result, are expected to remain cautious in lowering policy interest rates.

The World Bank said global interest rates are likely to remain high by the standards of recent decades—averaging about 4% over 2025-26, roughly double the 2000-19 average.

Middle East Region

The World Bank said geo-political tensions and policy uncertainty are elevated in the Middle East and North Africa (MENA) region.

“Human suffering and the destruction of physical capital in West Bank and Gaza arising from the ongoing conflict are immense. Attacks on shipping in the Red Sea have reduced transit through the Suez Canal, disrupted international trade, and heightened policy uncertainty, particularly in neighboring countries,” its report stated.

Activity by both oil exporters and importers in the MENA region remained weakened in early to the middle of 2024.

In member countries of the Gulf Cooperation Council (GCC), oil activity has been stagnant, the World Bank said.

In June 2024, oil production cuts were extended by a year until the end of 2025, and additional voluntary production adjustments were agreed to be maintained until the end of September 2024 before gradually phasing out from October.

Activity picked up in non-GCC oil exporters that were exempt from production cut agreements.

Saudi Arabia

In Saudi Arabia, the World Bank said growth in 2024 is projected to be supported by non-oil activity, and a gradual resumption of oil activity is expected to raise growth in 2025.

“In Saudi Arabia, the economy contracted in the first quarter of 2024, relative to a year ago, the third consecutive quarter of output contraction. However, growth in non-oil activity has remained robust, driven by both private consumption and business investment, somewhat offsetting a contraction of oil activity,” the report said.

Also, it noted, activity is forecast to increase in 2024 despite a projected decline in oil output.

“This growth is attributed to robust non-oil activity, driven by strong private consumption and investment, supported by fiscal and monetary policies. In 2025, a gradual resumption of oil activity is expected to raise growth,” the report found.

Oil Importers

Among oil importers, growth in 2024 is expected to pick up to 2.9 percent and then increase to 4% annually in 2025-26, the World Bank report said.

In Egypt, growth is projected to increase, propelled by investment growth partly spurred by a large-scale deal with the United Arab Emirates.

Growth in Jordan is anticipated to remain steady, although tourism-related activities will suffer in the short term.

In Tunisia, growth is forecast to rebound, but activity in Djibouti and Morocco is projected to soften in 2024.

High uncertainty around the economic outlook in West Bank and Gaza this year reflects the severity of the conflict. The economy of West Bank and Gaza is assumed to shrink, at least, by a further 6.5% —with the possibility of contraction by up to 9.4%—in 2024.

In Syria and Yemen, the outlook is subdued and uncertain, given the ongoing conflict, domestic violence and unrest, and tensions in the Red Sea, it said.

Outlook

Growth in MENA is expected to pick up to 2.8% in 2024 and 4.2% in 2025, mainly because of a gradual increase in oil production and strengthened activity since the fourth quarter of 2024, the report showed.

It said growth in GCC countries is forecast to strengthen to 2.8% in 2024 and 4.7% in 2025.

Among non-GCC oil exporters, a projected recovery in the oil sector in 2025 will help strengthen growth in Algeria and Iraq.

Risks

A major downside risk is the possible escalation of armed conflicts in the region. For oil importers, a tightening of global financial conditions could lead to capital outflows and exchange rate depreciation.

The World Bank said countries with high government debt would see increased debt-service burdens due to higher borrowing costs and the elevated risk of financial instability.

Also, severe weather events induced by climate change, as well as other types of natural disasters, remain a significant risk in MENA. Negative spillovers from weaker-than-expected growth in China would likely affect oil exporters through lower demand and prices for oil.