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Saudi Arabia Expected to Become More Attractive after Interest Rate Cuts

The kingdom aims to achieve an annual foreign direct investment inflow of over $100 billion (Asharq Al-Awsat)
The kingdom aims to achieve an annual foreign direct investment inflow of over $100 billion (Asharq Al-Awsat)
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Saudi Arabia Expected to Become More Attractive after Interest Rate Cuts

The kingdom aims to achieve an annual foreign direct investment inflow of over $100 billion (Asharq Al-Awsat)
The kingdom aims to achieve an annual foreign direct investment inflow of over $100 billion (Asharq Al-Awsat)

The US Federal Reserve cut interest rates for the first time in over four years at its meeting on Wednesday, a dramatic shift after more than two years of high rates helped tame inflation but that also made borrowing painfully expensive for consumers.
As the Fed and other central banks around the world lower rates, emerging markets could benefit from this shift in policy.
Historically, lower rates in advanced economies make emerging markets more attractive by encouraging capital inflows, boosting economic growth, and supporting investments in key sectors like infrastructure and technology.
Rate cuts usually reduce borrowing costs, which can help emerging market governments and companies by making it cheaper to access capital for expansion and easing debt repayment pressures.
Additionally, low rates in places like the US and EU often drive global investors to seek higher returns in faster-growing markets, increasing demand for emerging market assets.
Emerging economies can also benefit from greater currency stability as capital inflows strengthen their balance of payments, which helps stabilize inflation and make essential imports like food and energy more affordable.
Lower rates can also support domestic spending, boosting demand for local goods and services.
Saudi Arabia is emerging as one of the world’s most attractive markets as global interest rates decline. The kingdom’s dynamic economy and ongoing reforms position it well to take advantage of cheaper borrowing costs and support long-term sustainable growth.
According to Arun Leslie John, Chief Market Analyst at Century Financial, the outlook for Saudi Arabia is very positive compared to global trends, driven by strong growth in non-oil sectors and government efforts to attract foreign investment.
John told Asharq Al-Awsat that Saudi Arabia and other Gulf countries, whose currencies are tied to the US dollar, are expected to benefit from upcoming rate cuts, which will lower financing costs, boost liquidity, and encourage both spending and investment in the region.
These favorable conditions could speed up economic growth, boost stock prices, and make Saudi Arabia an even more attractive investment destination, he said.
Saudi Arabia aims to attract over $100 billion in annual Foreign Direct Investment (FDI) by 2030, a goal that seems achievable with the current easing of monetary policy, John added.
John also expects Saudi banks to benefit from lower interest rates by the end of 2024, which will be crucial for supporting lending and the government’s diversification plans.

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US Economy Grew at Solid 3% Rate Last Quarter, Government Says in Final Estimate

FILE - The New York Stock Exchange, at rear, is shown on Sept. 24, 2024, in New York. (AP Photo/Peter Morgan, File)
FILE - The New York Stock Exchange, at rear, is shown on Sept. 24, 2024, in New York. (AP Photo/Peter Morgan, File)
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US Economy Grew at Solid 3% Rate Last Quarter, Government Says in Final Estimate

FILE - The New York Stock Exchange, at rear, is shown on Sept. 24, 2024, in New York. (AP Photo/Peter Morgan, File)
FILE - The New York Stock Exchange, at rear, is shown on Sept. 24, 2024, in New York. (AP Photo/Peter Morgan, File)

The American economy expanded at a healthy 3% annual pace from April through June, boosted by strong consumer spending and business investment, the government said Thursday, leaving its previous estimate unchanged.
The Commerce Department reported that the nation's gross domestic product — the nation's total output of goods and services — picked up sharply in the second quarter from the tepid 1.6% annual rate in the first three months of the year, The Associated Press reported.
Consumer spending, the primary driver of the economy, grew last quarter at a 2.8% pace, down slightly from the 2.9% rate the government had previously estimated. Business investment was also solid: It increased at a vigorous 8.3% annual pace last quarter, led by a 9.8% rise in investment in equipment.
The final GDP estimate for the April-June quarter included figures showing that inflation continues to ease, to just above the Federal Reserve’s 2% target. The central bank’s favored inflation gauge — the personal consumption expenditures index, or PCE — rose at a 2.5% annual rate last quarter, down from 3% in the first quarter of the year. Excluding volatile food and energy prices, so-called core PCE inflation grew at a 2.8% pace, down from 3.7% from January through March.
The US economy, the world's biggest, displayed remarkable resilience in the face of the 11 interest rate hikes the Fed carried out in 2022 and 2023 to fight the worst bout of inflation in four decades. Since peaking at 9.1% in mid-2022, annual inflation as measured by the consumer price index has tumbled to 2.5%.
Despite the surge in borrowing rates, the economy kept growing and employers kept hiring. Still, the job market has shown signs of weakness in recent months. From June through August, America's employers added an average of just 116,000 jobs a month, the lowest three-month average since mid-2020, when the COVID pandemic had paralyzed the economy. The unemployment rate has ticked up from a half-century low 3.4% last year to 4.2%, still relatively low.
Last week, responding to the steady drop in inflation and growing evidence of a more sluggish job market, the Fed cut its benchmark interest rate by an unusually large half-point. The rate cut, the Fed’s first in more than four years, reflected its new focus on shoring up the job market now that inflation has largely been tamed.
Some other barometers of the economy still look healthy. Americans last month increased their spending at retailers, for example, suggesting that consumers are still able and willing to spend more despite the cumulative impact of three years of excess inflation and high borrowing rates. The nation’s industrial production rebounded. The pace of single-family-home construction rose sharply from the pace a year earlier.
And this month, consumer sentiment rose for a third straight month, according to preliminary figures from the University of Michigan. The brighter outlook was driven by “more favorable prices as perceived by consumers” for cars, appliances, furniture and other long-lasting goods.
A category within GDP that measures the economy’s underlying strength rose at a healthy 2.7% annual rate, though that was down from 2.9% in the first quarter. This category includes consumer spending and private investment but excludes volatile items like exports, inventories and government spending.
Though the Fed now believes inflation is largely defeated, many Americans remain upset with still-high prices for groceries, gas, rent and other necessities. Former President Donald Trump blames the Biden-Harris administration for sparking an inflationary surge. Vice President Kamala Harris, in turn, has charged that Trump’s promise to slap tariffs on all imports would raise prices for consumers even further.
On Thursday, the Commerce Department also issued revisions to previous GDP estimates. From 2018 through 2023, growth was mostly higher — an average annual rate of 2.3%, up from a previously reported 2.1% — largely because of upward revisions to consumer spending. The revisions showed that GDP grew 2.9% last year, up from the 2.5% previously reported.
Thursday’s report was the government’s third and final estimate of GDP growth for the April-June quarter. It will release its initial estimate of July-September GDP growth on Oct. 30.