Saudi Arabia Chart Book - June 2017

Transcription

1. June 2017 can be ded from www .samba.com Saudi Arabia Chart Book Executive Summary Office of the Chief Economist Economics Department Samba Financial Group P.O. Box 833, Riyadh 11421 Saudi Arabia ChiefEconomist@samba.com +9661-477-4770; Ext. 1820 (Riyadh) +4420-7659-8200 (London)  Global economic activity is reasonably firm, with robust employment growth continuing in the US and UK, solid manufacturing growth in Germany and signs of a revival in French consumer confidence following the victory of the centrist, Emmanuel Macron, in the recent presidential election. Even Japan is showing some signs of consumer-led reflation. In China the authorities are attempting to take the heat out of the housing market. This has led to a broader slowdown in output, but the authorities have the tools to engineer a turnaround should they wish. Political risk remains elevated however, with Donald Trump’s increasingly rancorous relationship with Congress hampering the roll-out of his economic agenda, and the anti-EU Five Star Movement well placed for Italy’s parliamentary elections.  Oil prices have struggled to sustain upward momentum despite a substantial cut in OPEC and non-OPEC output. While the large overhang of stocks is being whittled down, the pace has not impressed market traders, who have continued to focus on the revival of US tight oil (shale) production, which has partially offset the impact of these cuts. We continue to believe that the dearth of investment by IOCs in recent years will help to support prices in the medium term. But with much-reduced capex costs now benefiting all producers, the price recovery is likely to be shallower than we had earlier assumed.  In response to this altered landscape, the Saudi authorities are continuing their substantial fiscal adjustment (a commitment that remains intact despite the recent reinstatement of public sector allowances). This adjustment is far from complete and we continue to expect large fiscal deficits in the years ahead; but they should continue to narrow, and with access to external capital markets secure, the fiscal financing outlook is much better than it was. External balances are also expected to improve, helping net foreign assets to stabilise (at a very high level) next year. This in turn means that pressures on the exchange rate peg should continue to subside.  However, the corollary of this fiscal correction is weak domestic demand. Private investment is being deferred and households are cutting back on discretionary spending (though this might reverse with the reinstatement of allowances). Deflation is one facet of this contraction, though we do not expect this to become entrenched given that programmed price rises (and VAT in 2018) will keep inflationary expectations positive. The PUBLIC promise of renewed US investment in the Kingdom is also positive for medium-term growth prospects. 1
2. June 2017 Global Oil Markets Substantial supply cuts from OPEC and non-OPEC countries — now extended into Q1-18—have helped prices to rise, but they remain below the level reached when the supply agreement was first announced last year OPEC’s production discipline has been very good… …but the impact has been diluted by US shale output, which has benefitted from falling costs and enhanced hedging activity by producers PUBLIC 2
3. June 2017 . A good deal of shale forward production has been hedged at prices comfortably above $50/b This, and the prospect of weakening demand growth suggest that OPEC’s recent decision to extend its cuts into Q1-18 will be no panacea. Stocks seem likely to stay “higher for longer” Upstream Investment vs Global Cost Index (WoodMackenzie) We still expect prices to find support as the dearth of investment by private oil companies in recent years begins to bite But the longer-term price outlook has also been softened by generally lower capex costs which seem set to spur a revival of investment PUBLIC 3 .
4. June 2017 As long as OPEC compliance with cuts is strong and global demand growth holds at around 1 .3mb/d, 7 the market should rebalance this year, supporting higher prices. However, there is a downside risk that prices will be stuck in a $5055/b range For the first time, the authorities have released quarterly fiscal data. The figures showed a welcome 70% fall in the deficit in Q1-17 compared with a year earlier The main reason for the improvement was a surge in oil revenue, reflecting the very weak oil price performance in Q1-16. There was only a marginal gain in nonoil revenue, the raising of which is the centrepiece of the Vision 2030 plan In terms of spending, the government cut back hard on procurement during the first quarter (though lower costs also played a role). Public sector remuneration was also trimmed, though this has since been partially reversed by the reinstatement of public sector allowances SAUDI ARABIA Fiscal Performance (SR bn; MoF) Revenue of which, oil nonoil Q1 16 83.7 Q1 17 144.1 % change 72.2 52.0 31.7 112.0 32.1 115.4 1.3 Expenditure of which, employees' comp. goods & services capital 174.7 170.3 -2.5 99.2 21.4 23.8 94.1 16.7 29.1 -5.1 -22.0 22.3 Balance -91.0 -26.2 -71.2 Overall, while encouraging, it will take a few quarters of data to get a firm sense of the pace of fiscal consolidation this year PUBLIC 4
5. June 2017 The government ’s evident fas commitment to fiscal discipline Total bank deposits grew by just 1.9 has reassured percent in 2015,markets. with demand Pressure on the exchange deposits showing a small (1.3 rate—while still in evidence— percent) contraction. The fall in demand deposits was more than has eased, and the spread on offset by a 9 percentdebut increase the government’s 10 in time bond and savings deposits. This year has also narrowed partly reflects developments in the slightly local stock market: when the market does poorly—as it did last year—positions are liquidated and Overall, we are much more confident about the fiscal adjustment programme than previously. In terms of financing, we think the worst is over, and although there is still some SR800bn in financing to find over the next five years the unlocking of external sources of credit should allow government savings to stabilise Saudi Arabia: Fiscal Financing Outlook (SRbn) Fiscal financing requirement Financed by: Domestic debt issuance, of which: to local banks to GOSI, PIF, etc 2016 401 2017 282 2018 212 2019 145 2020 91 2021 89 112 92 20 81 61 20 72 57 15 51 36 15 37 27 10 35 25 10 External debt issuance 100 90 56 56 38 38 Total issuance 212 171 129 107 74 73 Change in government deposits memoranda: Central Govt domestic debt % GDP Central Govt external debt % GDP -190 -112 -83 -38 -17 -17 198 8.3 100 4.2 279 12.7 190 8.7 351 15.5 246 10.8 402 16.6 302 12.5 438 17.0 340 13.2 473 17.6 377 14.1 The government enjoys considerable “headroom” for further borrowing, both domestic and external By 2021 total debt stock is expected to be a comfortable 32 percent of GDP PUBLIC 5
6. June 2017 In an economy where the relationship between government spending and private activity is so close , this fiscal adjustment has come at an economic cost… GDP growth has slowed sharply (and might well now be in reverse) Construction has taken the heaviest hit as public sector investment has stalled. But domestic trade has also suffered as households retrench in the face of higher unemployment and cuts to nominal remuneration Private construction remains in the doldrums. Imports of building materials have slumped again, with contractors wary of holding large inventories in the current environment PUBLIC 6
7. June 2017 The hit to household incomes has dented retail sales , though volumes have held up as shoppers search for cheaper like-for-like items Meanwhile, discretionary items, such as cars, have taken a heavy hit, with dealers desperate to get rid of unsold 2017 inventory Real estate prices continue to fall, with commercial property dogged by overcapacity Residential is more complex: structural demand is strong, but prices have been affected by tighter mortgage lending and softness in the land market . . PUBLIC 7
8. June 2017 The overall impression is of an economy where prices are adjusting to a significant shock to demand Will deflation become entrenched ? It seems unlikely given the programmed increases to petrol and utilities prices, along with next year’s introduction of VAT. All this should help to keep inflationary expectations positive Saudi Arabia: Summary of Baseline Forecast Nominal GDP ($ bn) Real GDP (% change) Real nonoil GDP (% change) CPI inflation (%) GDP per head ($) Fiscal revenue (SR bn) percent change Fiscal spending (SR bn) percent change Fiscal balance (% GDP) Current account balance (% GDP) Net foreign assets ($ bn) Crude oil production (mbd) 3 month interbank rate (end year, percent) Memo: Oil prices (Brent, $/b) 2016 639.6 1.4 0.7 3.5 20,133 528 -13.9 930 -4.9 -16.7 -3.7 528.6 10.4 2.0 47.0 2017f 584.6 -0.5 0.6 1.5 17,866 636 20.5 919 -1.2 -12.9 0.7 487.3 10.1 1.6 57.0 2018f 605.8 1.9 2.2 2.0 17,974 718 12.8 944 2.7 -9.9 3.3 463.9 10.3 1.9 60.0 2019f 644.1 2.1 2.2 2.9 18,552 829 15.5 974 3.3 -6.0 7.8 496.9 10.6 2.2 68.0 2020f 688.2 3.4 3.9 3.5 19,247 930 12.1 1,021 4.8 -3.5 10.0 556.0 10.8 2.7 75.0 2021f 722.6 3.8 4.6 3.6 19,621 982 5.6 1,071 4.9 -3.3 9.1 618.0 11.1 3.0 75.0 2017f 584.6 -0.5 0.6 1.5 17,866 636 20.5 919 -1.2 -12.9 0.7 487.3 10.1 1.5 57.0 2018f 605.8 1.9 2.2 2.0 17,974 732 15.0 944 2.7 -9.3 4.1 472.5 10.5 1.8 60.0 2019f 644.1 2.1 2.2 2.9 18,552 829 13.3 974 3.3 -6.0 7.8 505.5 10.6 2.1 68.0 2020f 688.2 3.4 3.9 3.5 19,247 930 12.1 1,021 4.8 -3.5 10.0 564.6 10.8 2.6 75.0 2021f 722.6 3.8 4.6 3.6 19,621 982 5.6 1,071 4.9 -3.3 9.1 626.6 11.1 2.9 75.0 An increase in government spending—which we expect next year—should also help to jolt deflation out of the system Saudi Arabia: Summary of Baseline Forecast Sources: CDSI, SAMA, Samba Saudi Arabia: Summary of Baseline Forecast Nominal GDP ($ bn) Real GDP (% change) Real nonoil GDP (% change) CPI inflation (%) GDP per head ($) Fiscal revenue (SR bn) percent change Fiscal spending (SR bn) percent change Fiscal balance (% GDP) Current account balance (% GDP) Net foreign assets ($ bn) Crude oil production (mbd) 3 month interbank rate (end year, percent) Memo: Oil prices (Brent, $/b) 2016 639.6 1.4 0.7 3.5 20,133 528 -13.9 930 -4.9 -16.7 -3.7 528.6 10.4 2.0 47.0 More fundamentally, the economy will need significant amounts of foreign investment. This should help to break—or at least soften—the link between government spending and private activity by creating areas of autonomous private sector growth Sources: CDSI, SAMA, Samba Nominal GDP ($ bn) Real GDP (% change) Real nonoil GDP (% change) CPI inflation (%) GDP per head ($) Fiscal revenue (SR bn) percent change Fiscal spending (SR bn) percent change Fiscal balance (% GDP) Current account balance (% GDP) Net foreign assets ($ bn) Crude oil production (mbd) 3 month interbank rate (end year, percent) Memo: Oil prices (Brent, $/b) 2016 639.6 1.4 0.7 3.5 20,133 528 -13.9 930 -4.9 -16.7 -3.7 528.6 10.4 2.0 47.0 2017f 584.6 -0.5 0.6 1.5 17,866 636 20.5 919 -1.2 -12.9 0.7 487.3 10.1 1.6 57.0 2018f 605.8 1.9 2.2 2.0 17,974 718 12.8 944 2.7 -9.9 3.3 463.9 10.3 1.9 60.0 2019f 644.1 2.1 2.2 2.9 18,552 829 15.5 974 3.3 -6.0 7.8 496.9 10.6 2.2 68.0 2020f 688.2 3.4 3.9 3.5 19,247 930 12.1 1,021 4.8 -3.5 10.0 556.0 10.8 2.7 75.0 2021f 722.6 3.8 4.6 3.6 19,621 982 5.6 1,071 4.9 -3.3 9.1 618.0 11.1 3.0 75.0 Sources: CDSI, SAMA, Samba In this respect, the mid-May US trade mission to the Kingdom (led by President Trump) was encouraging PUBLIC 8
9. June 2017 James Reeve Deputy Chief Economist James .Reeve@samba.com Andrew Gilmour Deputy Chief Economist Andrew.Gilmour@samba.com Thomas Simmons Economist Thomas.Simmons@samba.com Disclaimer This publication is based on information generally available to the public from sources believed to be reliable and up to date at the time of publication. However, SAMBA is unable to accept any liability whatsoever for the accuracy or completeness of its contents or for the consequences of any reliance which may be place upon the information it contains. Additionally, the information and opinions contained herein: 1. 2. 3. Are not intended to be a complete or comprehensive study or to provide advice and should not be treated as a substitute for specific advice and due diligence concerning individual situations; Are not intended to constitute any solicitation to buy or sell any instrument or engage in any trading strategy; and/or Are not intended to constitute a guarantee of future performance. Accordingly, no representation or warranty is made or implied, in fact or in law, including but not limited to the implied warranties of merchantability and fitness for a particular purpose notwithstanding the form (e.g., contract, negligence or otherwise), in which any legal or equitable action may be brought against SAMBA. Samba Financial Group P.O. Box 833, Riyadh 11421 Saudi Arabia PUBLIC 9