Quality of Saudi growth spreads to more sectors
JEDDAH: Saudi Arabia’s economic growth eased to an annual rate of 4.7 percent in the first three months of 2014 as labor market measures curbed activity in some sectors, but the expansion was still stronger and more widespread than growth a year ago, data showed.
Economic growth in the Kingdom reached 5.0 percent in October-December, the fastest pace since the third quarter of 2012.
“It is certainly the change in the labor market affecting the annual growth,” said Fahad Al-Turki, head of research at Jadwa Investment in Riyadh.
“(But) the quality of growth is improving. It’s spread over more sectors than the top three.”
On a quarterly basis, inflation-adjusted gross domestic product growth accelerated to 3.4 percent, the fastest clip in a year, from 2.7 percent in the previous quarter, the Central Statistics Office data show.
Economic growth is usually at its most robust early in the year, when the weather is at its most favorable and few public holidays halt work.
Overall, the nonoil private sector growth slowed to 4.4 percent year-on-year from 6.2 percent in the previous quarter, the slowest pace in at least a decade, analysts said.
Around a million foreign workers left Saudi Arabia last year after a crackdown on visa irregularities as a part of labor reforms aimed at putting more Saudi nationals into jobs.
Another reason for the slowdown may be that households balance sheets are stretched after a surge in consumer borrowing over the past few years, said William Jackson, emerging markets economist at Capital Economics in London.
In the first quarter, growth in all three sectors that relied on cheap foreign labor — construction, retail and transport — slowed markedly from a year ago.
For example, construction output growth shrank to 5.6 percent in January-March, the slowest pace since end-2012 and down from 9.9 percent in the final three months of 2013.
Manufacturing, however, grew 6.5 percent, the fastest pace in two years and up from 4.0 percent in October-December, as new investment projects come on stream.
In the Kingdom’s north, Saudi Arabian Mining Co, or Maaden, is in the middle of a large $9 billion project that includes a phosphate mine, several major processing facilities, smaller downstream factories and a residential area.
Crude oil sector output, which accounts for almost half of the $748 billion Saudi economy, quickened to an annual 5.8 percent in the first quarter, the fastest rate since mid-2012, from 4.1 percent in the previous three months.
“This effect is likely to be weaker in the third and fourth quarter as the base is higher,” said Khatija Haque, head of MENA research at Emirates NBD. “Nonoil growth should pick up in the coming quarters, however.”
Saudi Arabia may raise oil output in the second half of the year to meet expected higher seasonal demand, despite Libya’s deal with rebels to resume oil exports. Iraq’s exports are unaffected by the security situation, but any disruption in crude supplies would put the onus on Riyadh to lift output.
In a separate survey, the Saudi purchasing managers index (PMI) rose to a five-month high in June, suggesting that activity in the non-oil sector have stabilized in the second quarter.
“In practice, though, it has been difficult to square the upbeat readings from the PMI with the more downbeat activity data,” Jackson said.
“Putting all of this together, we think overall Saudi GDP growth is likely to slow further, averaging around 3.5-4.0 percent over the next year or so,” he said.
A Reuters poll in April forecast the Saudi economic growth would ease to 3.8 percent in 2014 from 4.0 percent last year and then accelerate to 4.3 percent in 2015.
In Bahrain, real economic growth slowed to 3.1 percent year-on-year in the first quarter, the weakest performance since end-2012, and to a quarterly 0.1 percent, a separate data showed.
Oman saw its nominal GDP expand by an annual 4.6 percent in January-March as an 8.3 percent rise in non-oil activity offset a 0.2 percent contraction in the hydrocarbon sector, data also showed on Thursday.