IMF cuts Saudi economic growth forecast

The oil industry, with its notoriously known volatile history, is going through its deepest trough since the 1990s, if not earlier.

Earnings are low because of the plunging price of a barrel of oil, which has been cut roughly by more than 60 percent since June 2014.

This conjecture affects companies as well as “petro-countries” that have equally made record gains and profits in the recent past as never before since the advent of oil.

As expected after more than 18 months of low and still lowering oil prices, the Saudi economy’s growth was assessed by the IMF as performing not as it used to.  It was at some stages reaching the double digits but more recently at around the 5% level whereas now it is hardly above the one percent.

Many write-ups elaborated on the subject.  We have selected 2 among the best in the business.[ms-protect-content]

Bloomberg below scrutinised Saudi Arabia’ s assessment by the IMF as follows :

 

By Alaa Shahine and Vivian Nereim and published on 19 January 2016

The kingdom’s economy is estimated to grow 1.2 per cent in 2016

Saudi Arabia’s economy is set to grow this year at the slowest pace since 2002 as the oil-price plunge drains the kingdom’s finances, according to projections released by the International Monetary Fund and HSBC Holdings Plc on Tuesday.

Economic growth in the world’s largest oil exporter will slow to 1.2 percent, the IMF said in an update to its World Economic Outlook. That’s still more optimistic than HSBC, which expects the biggest Arab economy to expand 0.8 percent. Growth was 3.4 percent in 2015.

The prolonged oil slump saddled Saudi Arabia with a budget deficit of about $98 billion last year, pushing officials to cut spending, consider an international sovereign bond sale and cut energy subsidies. The price of Brent crude has fallen by more than 40 percent since October, when the IMF last released forecasts for the kingdom and said growth would be 2.2 percent this year.

Oil Outlook

The fundamentals “seem to point to a low-for-long scenario for oil,” Maury Obtsfeld, director of the IMF’s research department, said in a video released with the new data.

“With Iranian oil coming online, with the resilience in the shale extraction industry in the U.S., the possibility of shale extraction elsewhere, it’s hard to see oil going back to the $100 a barrel level anytime soon,” he said. Saudi officials have repeatedly said the economy is strong enough to weather the lower oil prices

The benchmark Tadawul All Share Index gained 4 percent Tuesday to close at 5,746.4 in Riyadh as oil rebounded from a 12-year low. The measure has lost 32 percent over the past 12 months.

The fall in oil prices is also forcing other oil producers in the Gulf Cooperation Council countries to cut subsidies and scale down public projects. The U.A.E., the second-largest Arab economy, scrapped fuel subsidies in August and reined in increases in public wages. HSBC trimmed its growth forecast for the 7-state federation to 2.3 percent from 2.4 percent.

HSBC cut projections elsewhere in the Persian Gulf. Qatar is now seen expanding 3.6 percent versus an initial estimate of 5.5 percent. Oman’s output forecast was reduced to 0.5 percent from 1.4 percent, and Kuwait’s was lowered to 1.9 percent from 2.1 percent. Bahrain remained unchanged at 1.8 percent.

Beating Estimates

The kingdom plans to cut the budget deficit to 326 billion riyals ($87 billion) in 2016. The 2015 deficit came in under target at 367 billion riyals or 16 percent of gross domestic product, according to the National Bank of Abu Dhabi. The median estimate of 10 economists was a shortfall of 20 percent of GDP in 2015 and 13.5 percent this year, according to data compiled by Bloomberg.

The country’s net foreign assets dropped for the 10th month in a row in November as it dug into its savings to finance the budget. The assets have tumbled $109 billion since August 2014. The government may issue international bonds in addition to local debt in 2016, according Finance Minister Ibrahim al-Assaf.

Saudi Arabia relied on oil for 73 percent of its revenue last year, a level of dependence the government is keen to reduce. Among other measures, it’s considering new forms of taxation and privatizing state assets, including an initial public offering for Saudi Arabian Oil Co., Deputy Crown Prince Mohammed bin Salman told The Economist this month.

“However, even allowing for significant reductions in outlays this year, we expect weak oil prices to leave Saudi Arabia with a budget deficit of well over 10 percent of GDP, suggesting the Kingdom faces multiple years of spending cuts and austerity as it seeks to rebalance public finances,” HSBC economists Simon Williams and Razan Nasser wrote in a report.

A more general view was covered by THE WALL STREET JOURNAL  that was published on 19 January 2016 an article titled :

IMF Cuts Global Economic-Growth Outlook

Forecast Downgraded Amid Weaker Forecasts for Europe, Japan and China

By Ian Talley

Sliding oil prices will give global growth a brief jolt, but the benefits won’t be strong enough to keep the world economy out of a deepening long-term rut, the International Monetary Fund said.

In new forecasts, the IMF downgraded its outlook for more than a dozen of the world’s largest economies, including markedly slower growth in China. The fund said global growth would be 0.3 percentage point lower this year and next than it had previously expected. It now expects the world economy to expand 3.5% this year and 3.7% in 2016.

“The price of oil is a shot in the arm,” IMF Chief Economist Olivier Blanchard said in an interview. “But there is clearly a state of weakness in the world economy and this shot is not enough.”

The emergency lender raised its outlook for the U.S. economy this year by half a percentage point to 3.6% as falling fuel prices at the pump helped juice the American recovery.

But tumbling crude costs failed to fend off stubborn economic anemia in the eurozone and Japan, two of the world’s largest economies at risk of returning into recession. The IMF cut its 2015 growth expectations for the currency union by 0.2 percentage point to 1.2% and chipped off the same amount for Japan’s forecast, putting growth in the world’s No. 3 economy at 0.6% for the year.

The IMF also chopped 0.3 percentage point off China’s forecast despite cheaper energy costs as Beijing sacrifices output to build up buffers against financial turmoil in its real-estate market. The fund’s forecast for China’s 2015 growth rate of 6.8% would be the slowest year-over-year expansion since 1990 and is below the 7% growth target that many economists expect Beijing to set for this year. Next year, growth in China is expected to decline a half-percentage point to 6.3%.

WSJ Market analysis

Read THE WALL STREET JOURNAL for the full article.[/ms-protect-content]

 

 

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