Saudi Economy: Moving Towards the Goal

Dr. Nouf Nassir AlSharif
Dr. Nouf Nassir AlSharif
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Saudi Economy: Moving Towards the Goal

Dr. Nouf Nassir AlSharif
Dr. Nouf Nassir AlSharif

The Saudi economy, the largest in the region, is on its way to record very strong growth level this year, following a year of remarkable performance and recovery from the repercussion of the coronavirus pandemic and the accompanying closures during 2020.

We expect that momentum to continue during 2022, which confirms the continuation of the journey of growth towards the future goals set by the Kingdom's Vision 2030.

Oil and non-oil economy
In more detail, the 7 percent growth of the Kingdom's economy is built on an annual basis, as we expect for 2022, which we referred to in one of the latest reports issued by Jadwa Investment, "Macroeconomic Update - November 2021", and is based on the "sizably higher oil sector growth and robust levels of non-oil growth."

We expect the growth of the oil sector to be driven by the Kingdom's increased crude oil production, in line with yearly rises in global oil demand. As for the non-oil sector, the economy will move forward with the continued implementation of Vision 2030 programs.

Diversification of the base
The coming year will mark a critical stage in the Kingdom's efforts towards diversifying its non-oil economic base, which will be guided by a set of recently announced commitments for five years (until 2025) under various Vision Realization Programs (VRPs).

At the same time, the Saudi economy will be supported by other large outlay in government expenditures, which, despite declining yearly, is still set to approach SAR1 trillion ($266.6 billion), as we indicated in the same report.

In addition, the Public Investment Fund (PIF) and the National Development Fund (NDF) are expected to be the engines of capital deployment and economic development in the Kingdom, as detailed in the recently unveiled National Investment Strategy (NIS).

In general, the main risks to our projections relate to the potentially disruptive nature of COVID-19 or, more specifically, to global developments related to the Omicron variant that has spread around the world over the past few weeks. That being the case, it is still too early to gauge the full impact of this variant on the Saudi economy.

Exceptional performance
In 2021, the Saudi non-oil economy recorded exceptional performance from the beginning to the third quarter. The General Authority for Statistics (GASTAT) recently issued preliminary estimates on the Kingdom's GDP, indicating a 6.2 percent growth of "non-oil activities" in the third quarter of 2021, year on year.

Meanwhile, the oil sector rebounded significantly in the third quarter (39 percent, YoY), in line with the higher oil production and the significant increases in refinery output.

We have revised our GDP estimates for 2021 as a whole to 2.7 percent, compared to our previous assessment of 1.8 percent, given the improved performance in both the oil and non-oil sectors and expectations of continued growth during the fourth quarter of this year.

More specifically, because of the exceptional performance of the non-oil economy during the first three quarters of 2021, combined with the expectations of continued growth during the final quarter of this year, we have revised our non-oil private sector GDP forecast to 5.7 percent for 2021 as a whole, versus 4.4 percent in our previous estimates.

A future vision
Looking at 2022, we estimate that the Saudi economy will grow by 7 percent due to higher oil sector growth and robust levels of non-oil growth, which we expect to reach 3.2 percent.

As for local prices, despite the rise in inflation in many parts of the world, we found that the prices in the Kingdom have not been severely affected so far, with slight monthly increases year-to-date.

More specifically, food prices have not seen any significant increases in recent months (as they increased by an average of 0.16 percent, month on month in the year-to-November), although a large portion of food products are imported.

In addition, we see that the price hikes in the "transportation" category at the beginning of the year stabilized following the Royal Directive to cap gasoline prices since June.

Considering all the above developments, we have revised our 2021 inflation forecast to 3.2 percent (compared to our previous estimate of 3.7 percent).

We expect inflation to reach 1.7 percent in 2022, as the full-year effects of higher VAT are fully exhausted.

However, we expect the inflation rate to be affected by the price recovery due to the higher demand in the "hotels and restaurants," "recreation and culture," and "education" categories, in light of the lifting of more pandemic-related restrictions.

Moving forward
The economy is expected to move forward during 2022, thanks to the continued implementation of Vision 2030.

The new year will mark a critical stage in the Kingdom's efforts towards diversifying its non-oil economy, which will be guided by recently revealed five-year commitments (until 2025) under various Vision Realization Programs (VRPs).

Accordingly, under the PIF program, we expect the construction sector to grow due to progress in megaprojects and through the Fund's focus on supporting national development by injecting capital of SAR150 billion during the year and beyond.

Finance and sectors
Backed by the Financial Sector Development Program, growth of the finance sector will be supported by the continued growth in credit and the result of more initial public offerings expected in the main and parallel markets.

In the meantime, the Quality of Life Program VRP will help support growth in the wholesale and retail trade sectors.

Furthermore, non-oil manufacturing and mining growth will benefit through a reconfigured five-year delivery plan under the National Industrial Development and Logistics Program (NIDLP).

At the same time, the implementation of high-priority programs under the national transport and logistics strategy will positively affect the transport and communications sector.

*Director of the Economic Research Department at Jadwa Investment, Saudi Arabia



IEA: The Age of Electricity is Coming, We Will Still Use Oil and Natural Gas

FILE PHOTO: A view of the logo of the International Energy Agency in Paris, France, December 15, 2023. REUTERS/Sarah Meyssonnier/File Photo
FILE PHOTO: A view of the logo of the International Energy Agency in Paris, France, December 15, 2023. REUTERS/Sarah Meyssonnier/File Photo
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IEA: The Age of Electricity is Coming, We Will Still Use Oil and Natural Gas

FILE PHOTO: A view of the logo of the International Energy Agency in Paris, France, December 15, 2023. REUTERS/Sarah Meyssonnier/File Photo
FILE PHOTO: A view of the logo of the International Energy Agency in Paris, France, December 15, 2023. REUTERS/Sarah Meyssonnier/File Photo

The concentration of a small number of countries in clean energy supply chains is an emerging challenge for Southeast Asian countries, International Energy Agency Executive Director Fatih Birol said on Tuesday, amid fast-rising power demand in the region.

"The age of electricity is coming. We will still use oil, still use natural gas including LNG, but electricity demand is growing very strongly," Birol told delegates at the Singapore International Energy Week conference.

Birol did not identify the countries dominating clean energy supplies, but China is by far the largest global supplier of renewable energy equipment, from solar panels ⁠to wind turbines, electric ⁠vehicles and batteries.

Electricity demand in ASEAN countries is rising at twice the pace of overall energy consumption, driven by industrial electrification, air-conditioning needs, electric vehicles and data centers, he said.

Southeast Asian nations have emerged as key drivers of China's clean-energy export boom, splashing out over $20 billion on Chinese-made clean-tech products so far in 2026, according ⁠to energy think tank Ember.

Birol also warned that geopolitical tensions have become an increasingly dominant force in global energy markets.

"In my professional life, I have never, never ever seen the dark and long shadow of geopolitics dominating the energy sector in such a way," Reuters quoted him as saying. "I can only imagine that the role of geopolitics will be much more pronounced, and this means energy security is going to become even more important than it is today."

Birol said the Middle East war has triggered fundamental changes in global energy consumption patterns, ⁠spurring growth in ⁠solar, coal and nuclear power as well as electric vehicle adoption.

"I see in the last eight months very strong growth of electric car sales," he said, adding that global electric vehicle sales outside China had risen 60% above previous trends over the period because of the conflict.

Consumption of alternative energy sources has increased as diesel prices have jumped about 200% and LNG prices have risen 250% from pre-war levels, according to Birol.

He said on Monday at the same conference that he does not expect energy markets in 2027 to return to where they were before the US-Israeli war on Iran began.


Cyprus Seals $1.8 Bn Deal to Develop First Commercial Gas Project

The Cypriot Cronos field in the Mediterranean is being developed by a joint venture between operator Eni and TotalEnergies (X)
The Cypriot Cronos field in the Mediterranean is being developed by a joint venture between operator Eni and TotalEnergies (X)
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Cyprus Seals $1.8 Bn Deal to Develop First Commercial Gas Project

The Cypriot Cronos field in the Mediterranean is being developed by a joint venture between operator Eni and TotalEnergies (X)
The Cypriot Cronos field in the Mediterranean is being developed by a joint venture between operator Eni and TotalEnergies (X)

Cyprus signed contracts worth $1.8 billion with Italian energy provider Eni on Monday to develop the Mediterranean island nation's first commercial gas project, with production slated for 2028 on the project in partnership with France's TotalEnergies.

European countries have stepped up efforts to use domestic energy resources with the Ukraine and Iran wars roiling global energy markets and supply in recent years.

The agreements to develop the field in Cyprus' exclusive economic zone cover engineering, construction, installation and drilling work, allowing natural gas to be transported to Egypt for processing and liquefaction before delivery mainly to European markets.

"Eni has signed the main engineering, procurement, construction and drilling contracts for the development of the Cronos Project, marking the start of the project's execution phase and a key milestone towards the monetization of Cyprus' first gas development," AFP quoted the Italian firm as saying in a statement.

"As Eni's first development project in Cyprus and the country's first hydrocarbon development, Cronos represents a strategic milestone."

Cypriot President Nikos Christodoulides in a statement hailed the agreement as a "decisive step towards exploiting our country's natural wealth.”

He said the contracts for the "first commercial exploitation of Cypriot natural gas" were worth up to $1.8 bn.

"It represents a strong vote of confidence in our country's energy prospects with significant geopolitical and economic implications," he added.

Cypriot Energy Minister Michalis Damianos said the project marked Cyprus' transition from offshore exploration and discoveries to developing and producing its gas reserves.

Kronos is estimated to contain more than three trillion cubic feet of natural gas.

Existing Egyptian infrastructure will be used, including facilities linked to the large Zohr gas field, with the gas to be liquefied at the Damietta terminal for export.

Using existing infrastructure is expected to reduce costs and accelerate the route to market, while deepening energy cooperation between Cyprus and Egypt.

"A regional value chain is being created that connects Cyprus's resources, Egypt's infrastructure and European demand," said Damianos.

Cyprus has discovered offshore gas but has not yet brought a field into commercial production.

Kronos is seen as a key test of its ability to turn those discoveries into exports.

Eni and Total hold the majority of exploration blocks -- seven of 13 south of the island -- licensed by the Cyprus government.

The eastern Mediterranean has become an energy hot spot, with significant natural gas finds off Israel and Egypt.


HSBC Shares Tumble 6% after Third-quarter Revenue Disappoints, Wealth Growth Slows

People alight from a tram outside the HSBC bank headquarters in Hong Kong on October 27, 2026, ahead of the bank's third quarter results announcement. (Photo by Peter PARKS / AFP)
People alight from a tram outside the HSBC bank headquarters in Hong Kong on October 27, 2026, ahead of the bank's third quarter results announcement. (Photo by Peter PARKS / AFP)
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HSBC Shares Tumble 6% after Third-quarter Revenue Disappoints, Wealth Growth Slows

People alight from a tram outside the HSBC bank headquarters in Hong Kong on October 27, 2026, ahead of the bank's third quarter results announcement. (Photo by Peter PARKS / AFP)
People alight from a tram outside the HSBC bank headquarters in Hong Kong on October 27, 2026, ahead of the bank's third quarter results announcement. (Photo by Peter PARKS / AFP)

HSBC's shares slid 6% on Tuesday after revenue undershot estimates and growth at its wealth business slowed, highlighting the challenge big banks face to sustain recent record profits.

Europe's largest bank reported a 32% surge in pretax profit to $9.6 billion for the July-September quarter, in line with estimates. But investors and analysts focused on the lack of upgrades to the bank's performance guidance and underwhelming third-quarter revenue of $18.6 billion against forecasts for $19 billion.

The drop in the bank's shares underscores how recent strong results from European lenders have increased investor expectations for performance, even as the impact of the Iran war on inflation and interest rates has created a tough environment for banks. The shares remain up 9% for the year to ⁠date.

HSBC also launched ⁠a share buyback of up to $1 billion, the same amount as the previous quarter and a move that had boosted shares in previous reporting periods but is now largely expected by investors.

"There is sometimes a market expectation that we upgrade guidance or targets," CFO Pam Kaur told reporters on a conference call when asked about the share drop.

According to Reuters, analysts noted that the bank's net interest income slightly missed expectations, while fee income from its key wealth growth pillar was steady but ⁠unspectacular.

Escalating deposit competition in Hong Kong and the UK, HSBC's two core markets, are expected to push up interest expenses, they said. Time deposits in the bank's Hong Kong portfolio rose two percentage points quarter-on-quarter to 38%, but Jefferies analysts noted that the shift to chase higher deposits by offering higher interest rates is expected to erode margins.

Revenue for HSBC's wealth division was flat at $2.7 billion. That compared with 15% and 23% year-on-year revenue growth in the first two quarters.

The performance of HSBC's wealth business is under particular scrutiny because the British bank, like its peers, is focusing growth on fee-generating businesses such as wealth management as lending comes under pressure from falling interest rates.

Analysts warned that Asia-focused banks are bracing for a slowdown in wealth momentum ⁠following robust gains driven ⁠by Chinese capital inflows.

Kaur said on the call that China's tightening of wealth flows has prompted clients to shift from other banks in Hong Kong to HSBC.

"We picked up more business."

HSBC benefited from the absence of legal provisions booked in the same quarter a year earlier. It also said expected credit losses tumbled 17% to $800 million, thanks to a reduction in charges linked to Hong Kong's real estate sector as well as its UK and Mexican wealth businesses.

British banks' strong recent results have prompted calls from trade unions and activist groups for tax hikes on the sector in finance minister John Healey's first budget, due on Wednesday.

Bank bosses have lobbied hard to avoid such an increase in sector levies, arguing it would curb lending and make Britain less competitive.

HSBC announced an interim dividend of $0.1 per share, the same as the previous quarter.