The Kingdom’s industrial output is now expected to grow by 5.4 percent, up from April’s forecast of 2.4 percent. Furthermore, the report has upgraded Saudi Arabia’s exports growth by more than double from 4.7 percent to 9.6 percent.
Arab News reported in October that the revision was mainly attributed to higher growth rates and the bank forecasts for the GCC economies as the aggregate GDP growth forecast for 2021 has been increased by 0.4 percentage points from 2.2 percent to 2.6 percent.
The report also upped its 2022 projection for GCC GDP growth by 1.4 percentage points from 3.3 percent to 4.7 percent.
Firmer global oil demand will support Saudi Arabia’s economic recovery in 2021, with GDP growth expected to reach 2.4 percent in 2021. Medium-term growth is projected to average 3 percent over the forecast period.
Economic Growth and COVID-19
The latest issue of the World Bank Gulf Economic Update (GEU) titled “COVID-19 Pandemic and the Road to Diversification” also said that this growth was buoyed by the global economic recovery, projected at 5.6% and the revival of global oil demand and international oil prices.
The COVID-19 pandemic and the decline in global oil demand and prices dealt the GCC countries a health crisis and a commodity market shock, causing a GDP contraction of 4.8% in 2020.
Commenting on the report, Issam Abousleiman, World Bank Regional Director of the GCC Countries, said:
“While the GCC has done a lot in the last year to contain the effects of the pandemic on their economy, including procuring vaccinations early on, they must continue to reform their public sector finances. The region needs to strengthen their competition policies to harness the benefits of telecommunications and the digitalization of economic activity.”
Saudi IDR was raised to “Stable”
In related news, American credit rating agency Fitch Ratings revised the outlook on Saudi Arabia’s long-term foreign-currency issuer default rating (IDR) to “Stable” from “Negative.” It affirmed the IDR at ‘A.’
The Outlook revision reflects prospects for a minor deterioration in key sovereign balance-sheet metrics than at the time of the previous review, owing to significantly higher oil prices and continued government commitment to fiscal consolidation.
A statement from Fitch commenting on this said:
“We continue to forecast government debt/GDP to rise and sovereign net foreign assets (SNFA) to decline over the medium term, but these metrics will remain considerably stronger than the ‘A’ median. In addition, the government will retain significant fiscal buffers, for example, deposits at the central bank in excess of 10% of GDP. Oil dependence, weak governance indicators and vulnerability to geopolitical shocks constrain the rating.”
Fitch also said that Saudi Arabia’s external finances remain “formidable” despite the deterioration in recent years.
“We forecast SAMA reserves to increase towards USD470 billion in 2022-2023 as the current account returns to surplus and as public institutions and enterprises, notably the PIF, invest less abroad and more domestically.”
Saudi Arabia has one of the highest reserve coverage ratios among Fitch-rated sovereigns at more than 20 months of current external payments. Fitch forecasted SNFA to fall from 75 percent in 2020 to 63 percent of GDP in 2023 — but it is also likely to remain the most vital figure in the ‘A’ category.
