Saudi Economic Chartbook - Riyad Capital Economic Chartbook...Saudi production and exports of crude...

Hans-Peter Huber, PhD Chief Investment Officer Riyad Capital 6775 Takhassusi St. – Olaya Riyadh 12331-3712 [email protected]

Saudi Economic Chartbook

February 2017

Saudi Economic Chartbook February 2017

Page 1

Table of Contents:

GDP Data ………………….…………. 2

Monetary and Financial

Indicators ………………………….… 4

Private Spending and

Foreign Trade …............................... 7

Non-Oil Business Climate

Indicators …………………...……….. 8

Inflation Indicators ……………... 9

Real Estate Market …………..... 10

Oil Market …….………………………12

Foreign Exchange and

Interest Rates …….………...……… 13

Saudi Balance of Payments ..….15

Saudi Equity Market ………...... 16

Facts and Figures

at a Glance …….……………............ 18

USD/SAR-Forward Premium and SAR-USD Interest Rate Spread

The USD/SAR FX-forward

premium and the SIBOR-

LIBOR interest rate spread

have largely “normalized”

in the last months.

source: Bloomberg

Normalizing Conditions on Domestic and FX Financial Markets

USD/SAR 12M forward premium in bp, l.h.sc.

3M SIBOR-LIBOR interest rate spread in %-points, r.h.sc.

Based on preliminary estimates for the full year 2016 the GDP growth rate of

1.4% can almost entirely be explained by the positive Oil sector contribution

while the Non-oil economy was barely growing throughout the year.

Monetary and financial indicators have clearly improved in the course of the

last quarter 2016 on the back of a more expansionary fiscal stance of the gov-

ernment which settled its late bill payments.

Indicators of non-oil economic activity show a mixed picture. While growth

of ATM-withdrawals and Point-of-sales transactions is stagnating, business

climate indicators point towards a recovery by beginning of 2017.

Saudi production and exports of crude oil grew each by about 3% in 2016.

Meanwhile, petroleum refinery activity and exports of refined products

surged by 16% respectively 25% in the same period.

Interest rate spreads to USD rates and the USD/SAR forward exchange rate

premium have further considerably narrowed in the recent months, pointing

towards normalizing conditions on domestic and FX financial markets (see

figure below).

After two years in deficit the current account balance turned positive again in

the 3rd quarter 2016. Meanwhile, foreign reserve assets still declined but at a

diminishing rate.

The Saudi equity market has entered a consolidation phase after its strong

recovery in the 4th quarter 2016. The decline of corporate earnings and the

rebound in prices has translated into a considerable PE-multiple expansion

of the overall market.


Page 2

source: GASTAT source: GASTAT

Real GDP growth Overall economy, quarterly % yoy Real GDP growth Non-oil private sector, quarterly % yoy

Gross Domestic Product (GDP) Overall Economy and Institutional Sectors

The lack of growth of the Non-oil sector witnessed

in the first three quarters of 2016 is also weighing

on the preliminary full year GDP estimates. The

growth rate of 1.4% for 2016 can almost entirely be

explained by the Oil sector contribution. With nom-

inal growth of the Non-oil private sector gradually

picking up the gap between GDP deflator and CPI

headline inflation is diminishing.

source: GASTAT, RC source: GASTAT

Real GDP growth Oil-sector, quarterly % yoy Nominal GDP growth Non-oil private sector, quarterly % yoy

GDP deflator Non-oil private sector % yoy

CPI inflation % yoy

Figure 2:

Nominal and Real GDP Non-Oil Private Sector

Figure 1:

Real GDP Overall Economy and Oil Sector

Figure 3:

GDP Growth Contribution by Institutional Sector Figure 4: GDP Deflator and CPI Inflation

Oil sector

Non oil private sector

Government sector

Overall economy


Page 3


Crude oil & Natural gas production Construction

Gross Domestic Product (GDP) by Kind of Economic Activity

The GDP growth analysis by kind of economic activ-

ity after three quarters 2016 shows a mixed picture.

While the construction sector and government ser-

vices (the core of the government sector) exhibited

the most negative growth rates (-3.8% respectively

-3.9%), petroleum refining activity stood out with a

stunning growth rate of +11.9%, thereby further

fuelling growth of the entire Oil sector.

Wholesale & retail trade, hospitality


Finance, Insurance, Real Estate and business services

Petroleum refining (manufacturing) Other manufacturing (e.g. Petchem)

Producers of government services

Transport, storage and communication

Figure 2:

Real Growth of Selected Economic Sectors

Figure 1:


Figure 4: Real Growth of Selected Economic Sectors

Figure 3:



Page 4

source: SAMA source: SAMA

Monetary base, % yoy

Aggregate M1, % yoy

Aggregate M2, % yoy

The government expenditure increase due to late bill payments in the 4th quarter 2016 and SAMA’s accommodative stance represented an inflection point for the liquidity of domestic money markets.

This is mirrored in monetary aggregates’ growth rates turning positive again. Meanwhile, the late bill payments allowed corporates to reduce their credit exposure leading to lower credit growth.


Banks’ claims on private sector, % yoy, l.h.sc. Banks’ overall customer deposits, % yoy, l.h. sc.

Aggregate M3, % yoy

Monetary Aggregates, Credit and Commercial Banks’ Deposits

Banks’ claims on private sector, % mom, r.h.sc. Banks’ overall customers deposits, % mom, r.h.sc.

Figure 1:

Growth Rate Monetary Base and Aggregate M1

Figure 2:

Growth Rate Monetary Aggregates M2 and M3

Figure 3:

Growth of Credit to the Private Sector

Figure 4:

Growth of Commercial Banks’ Deposits


Page 5

source: SAMA


Claims on the private sector as % of total bank deposits Claims on the government as % of total bank deposits

The declining credit growth and expanding bank

deposits as a result of the improved domestic li-

quidity situation caused a drop of the loan-deposit-

ratio to 86.9 (after a peak at 91.1 in mid-2016).

Meanwhile, the government mainly shifted its bor-

rowing activity from the domestic to the interna-

tional capital market in the 4th quarter, hence con-

solidating its overall debt at commercial banks.

Claims on the private sector as % of total bank deposits Claims on private sector and government as % of total

bank deposits

source: SAMA

Commercial Banks’ Loan-Deposit-Ratios

Claims on the government as % of total bank deposits

Figure 1:

Private Sector Loan-Deposit-Ratio

Figure 2:

Government Sector Loan-Deposit-Ratio

Figure 3:

Loan-Deposit-Ratios in the Long Term

Figure 4:

Overall Loan-Deposit-Ratio in the Long Term


Page 6


Total foreign currency reserves at SAMA, in bln SAR, l.h.sc.

Monthly change in foreign currency reserves at SAMA, in

bln SAR, r.h.sc.

Total government deposits at SAMA, in bln SAR, l.h.sc.

SAMA’s foreign reserves declined in the last quarter

2016 by 69bln SAR. For the overall year the re-

serves were reduced by 300bln SAR after 425bln

SAR in 2015. Government deposits at SAMA

dropped by 195bln SAR in 4th quarter. This can be

explained by a transfer of 100bln SAR to PIF in Oc-

tober and the late payments of previous years’ bills

of 105bln SAR in the last three months.


Total foreign currency reserves at SAMA, in bln SAR Total government deposits at SAMA, in bln SAR

Monthly change in total government deposits at SAMA,

in bln SAR, r.h.sc.

SAMA Balance Sheet: Key Elements of Assets and Liabilities

Figure 1:

Foreign Currency Reserves at SAMA

Figure 2:

Government SAR Deposits at SAMA

Figure 3:

Foreign Currency Reserves at SAMA in the Long Term

Figure 4:

Government SAR Deposits at SAMA in the Long Term


Page 7

Point-of-Sales transactions and ATM-withdrawals

as indicators for private spending remained weak

throughout the 4th quarter of last year. Meanwhile,

exports could stabilize somewhat towards the end

of the year. Next to weak domestic demand the

sharp drop of imports can also be explained by a

stronger SAR traded-weighted exchange rate and

partly lower prices of imported goods (e.g. food).


Non-Oil exports, % yoy Imports, % yoy

3-Months Moving Average, % yoy 3-Months Moving Average, % yoy

Private Spending Indicators and Non-Oil Foreign Trade


Point-of-sales transactions, % yoy

3-Months Moving Average, % yoy

ATM withdrawals, % yoy

3-Months Moving Average, % yoy

Figure 1:

Point-of-Sales Transactions

Figure 2:

ATM Transactions

Figure 3:

Growth of Non - Oil Exports

Figure 4:

Growth of Imports


Page 8

source: Markit source: Markit

Emirates NBD PMI Composite

6-Months Moving Average

Emirates NBD PMI Output

Purchasing Manager Indices as typical business cli-

mate indicators have started to gradually recover

towards yearend after having reached new lows in

October of last year. Overall they indicate an im-

provement of the Non-oil economy into the first

quarter of 2017. Besides, the pick-up in output pric-

es points towards some more domestic pricing

power for companies in the Non-oil economy.

source: Markit source: Markit

Emirates NBD PMI New Orders

Non-Oil Private Sector Business Climate Indicators

Emirates NBD PMI Output Prices

6-Months Moving Average

6-Months Moving Average 6-Months Moving Average

Figure 1:

Purchasing Manager Index Composite

Figure 2:

Purchasing Manager Index Output

Figure 3:

Purchasing Manager Index New Orders

Figure 4:

Purchasing Manager Index Output Prices


Page 9


CPI inflation, % yoy CPI inflation, % yoy

In January 2017 CPI inflation fell for the first time

since 15 years into negative territory with -

0.4%. This is primarily due to the impact of last

year’s energy price increases now dropping out of

the year-on-year inflation figure. Besides, the defla-

tionary trend of the food&beverages sub-index, giv-

en its important weight of 21% in the index, also

negatively affected overall inflation.


CPI inflation, sub-index Transport, % yoy

WPI inflation, % yoy

Consumer and Wholesale Price Inflation

CPI inflation, sub-index Furnishings, household equipment & CPI inflation, sub-index Food and non alcoholic

CPI inflation, sub-index Housing, water, electricity, gas

and other fuels, % yoy

Figure 1:

Consumer Price Inflation All Items

Figure 2:

Consumer Price and Wholesale Price Inflation

Figure 3:

CPI Inflation Food & Housing

Figure 4:

CPI Inflation Furnishings & Transportation


Page 10

source: MOJ, RC

In 2016 the total real estate transaction value

dropped by -26% compared to the previous year.

The decline in residential real estate activity was

more pronounced at -33% while commercial real

estate transactions receded by -11% over the same

period. The Kingdom’s main three regions (Riyadh,

Makkah, Eastern Region) covered 88% of all real

estate activity in the last quarter of 2016.

source: MOJ, RC source: MOJ, RC

Total value of transactions in bln SAR, 4Q MA, l.h.sc.

Number of transactions in tsd, 4Q MA, r.h.sc.

Real Estate Market: Transaction Activity

Riyadh Region

Makkah Region

Eastern Region

All Other Regions


Number of transactions, in tsd, 4Q MA, r.h.sc.

source: MOJ, RC


Number of transactions in tsd, 4Q MA, r.h.sc.

Figure 1:

Quarterly Real Estate Transactions Overall Country

Figure 3:

Quarterly Commercial Real Estate Transactions

Figure 4:

Breakdown of Transaction Value by Regions (Q4 2016)

Figure 2:

Quarterly Residential Real Estate Transactions


Page 11


The new real estate price indices by GASTAT reveal

that property prices generally declined since their

peak by end of 2014. In 2016 residential prices

dropped by -7.3% whereas commercial prices re-

ceded by -12.2%. This was primarily due to a gen-

eral reduction of land prices over this period. The

planned white land tax apparently started to take a

toll on land prices prior to its introduction.


Residential villas price index

Residential price index Residential land price index

Commercial land price index Commercial price index

Real Estate Market: Price Indices

Residential apartments price index

Commercial centers price index

Commercial shops & galleries price index

2014 = 100 2014 = 100

Figure 1:

Residential and Commercial Price Indices

Figure 2:

Residential and Commercial Land Price Indices

Figure 3:

Residential Villas and Apartments Price Indices

Figure 4:

Commercial Shops and Centers Price Indices


Page 12

source: JODI, Bloomberg source: JODI

Saudi Arabian crude oil production, in tsd bd

Saudi Arabian total oil refinery output in tsd bd

Whereas Saudi crude oil production and exports

grew each in 2016 by about 3% compared to 2015,

its refinery output and refined product exports

climbed by 16% respectively 25% over the same

period. Prior to the implementation of the agreed

output cuts OPEC crude production reached a multi-

year peak in November 2016. On the back of these

output cuts oil prices surged to the 50-60USD range.

source: Bloomberg source: Bloomberg

Brent oil price

OPEC crude oil production pro forma, in tsd bd

(incl. Indonesia and Gabon during OPEC membership)

OPEC crude oil production, in tsd bd

WTI oil price

Oil Market Statistics: Production, Exports, Refinery and Prices

Saudi Arabian crude oil export, in tsd bd Saudi Arabian total oil refinery export, in tsd bd

Figure 1:

Saudi Crude Oil Production and Exports

Figure 2:

Saudi Crude Refinery Output and Exports

Figure 3:

OPEC Crude Oil Production

Figure 4:

Oil Prices


Page 13

source: Bloomberg source: Bloomberg, JP Morgan

12-months forward exchange rate USD/SAR

Most recently the forward premium in USD/SAR

exchange rate has further declined from 440bp in

mid-December to 185bp in mid-February. A year

ago, at oil prices below 30USD, this forward premi-

um peaked at almost 1000bp. The (nominal and

real) effective SAR-exchange rate gradually correct-

ed since end of last year after having surged on the

back of a strong US dollar in the last months of 2016.

source: Bloomberg source: Bloomberg, JPMorgan

SAR Real (CPI-adjusted) trade-weighted exchange rate index

SAR Nominal trade-weighted exchange rate index

Foreign Exchange: Forward Rates and Effective Exchange Rate Index

12-months forward exchange rate USD/SAR

SAR Nominal trade-weighted exchange rate index

SAR Real (CPI-adjusted) trade-weighted exchange rate index

Figure 1:

12-Months Forward Exchange Rate SAR/USD

Figure 2:

SAR Nominal and Real Effective Exchange Rate

Figure 3:

12-Months Forward Exchange Rate SAR/USD in

the Long Term

Figure 4:

SAR Nominal and Real Effective Exchange Rate in the

Long Term


Page 14


3-months SIBOR (Saudi Interbank Offered Rate)

5-year Swap rate SAR

The easing liquidity conditions of domestic money

markets translated into a further decline of SIBOR

interest rates. The 3-months rate dropped from

2.4% in October to 1.9% by mid-February. Corre-

spondingly, the SAR-USD rate spreads narrowed

across the yield curve with 3M SIBOR-LIBOR spread

dropping to 80bp from a peak of 160bp in 2016 and

5Y Swap rate spread receding to 140bp from 275pb.


as of 10 February 2017 Reverse repo rate SAMA

as of 30 June 2016 3-months SIBOR (Saudi Interbank Offered Rate)

5-year Swap rate USD 3-months US LIBOR (London Interbank Offered Rate)

Interest Rates: Money Market, Capital Market and Central Bank Rates

3-months SIBOR (Saudi Interbank Offered Rate)

3-months US LIBOR (London Interbank Offered Rate)

Figure 1:

3-Months SIBOR vs. USD LIBOR

Figure 2:

5-Year Swap Interest Rate

Figure 3:

SIBOR Yield Curve

Figure 4:

Central Bank Rate and 3-Months SIBOR


Page 15


Balance of trade for goods, quarterly in bln SAR

Balance of trade for services, quarterly in bln SAR

Current account balance quarterly in bln SAR

After two years in deficit the current account has

turned positive again in the 3rd quarter 2016.

Meanwhile, the financial account shows clear signs

of improvement as well. Due to the errors and

omissions account in the Balance of Payments in-

dicating a not explicable outflow in the recent

quarters the foreign reserve assets still witness a

depletion which, however, has clearly diminished.


Financial account balance (excluding changes in

foreign reserve assets), quarterly in bln SAR

(+ capital inflows, - capital outflows)

Net change in foreign reserve assets, quarterly in bln SAR

Saudi Balance of Payments

Figure 1:

Trade Balance for Goods and Services

Figure 2:

Current Account Balance

Figure 3:

Financial Account Balance

Figure 4:

Net Change in Foreign Reserve Assets


Page 16

source: Bloomberg source: Tadawul

Tadawul All-share index Average daily trading value for Tadawul, in mln SAR

After its strong recovery in the 4th quarter 2016

Tadawul is consolidating around the 7000 level.

Average daily trading value gradually receded from

about 5.4bln SAR in November and December to

4.5bln in January. Trading activity by ownership

data reveal that mutual funds, which had been the

main drivers of the rally by end of last year, clearly

reduced their net purchases in 2017.

source: Tadawul source: Tadawul

Tadawul: Saudi Equity Market Statistics

10-Weeks Moving Average

Retail Mutual funds

High Net Worth Individuals total (HNWI and IPI) Corporates

Government related entities (GRE) Foreign investors total (incl. GCC)

Figure 1:

Tadawul All-Share Index

Figure 2:

Tadawul Total Trading Value

Figure 3:

Weekly Net Purchase by Ownersip

Figure 4:

Weekly Net Purchase by Ownersip


Page 17


TASI quarterly EPS in SAR, l.h.sc

Earnings per share (EPS) for TASI dropped in the

4th quarter to 66SAR, a decline of -42% to the previ-

ous quarter and of -18% to the 4th quarter 2015. On

a 4Q trailing basis TASI EPS were at 405SAR for the

full year 2016, a drop of -22% compared to their

peak level in 2014. Falling earnings and a re-

bounding market translated into a considerable

PE-multiple expansion by end of last year.


PE ratio TASI, 12-months trailing earnings

Long-term average

TASI 4Q trailing EPS in SAR, r.h.sc.

PE ratio TASI, 12-months forward earnings

Long-term average

Tadawul: Saudi Equity Market Statistics

Figure 1:

Performance TASI Sectors January 2017YTD

Figure 2:

Quarterly Earnings TASI

Figure 3:

Valuation TASI: PE-Ratio Trailing

Figure 4:

Valuation TASI: PE-Ratio Forward


Page 18

Economic Facts and Figures at a Glance

We expect Saudi economic growth to slow down to 0.5% in 2017 from 1.4% in 2016. This will be the result of diverging trends of the Oil- and the Non-oil economy. While the Oil sector is expected to shrink due to the OPEC output cut agreement (-1.1%), the Non-oil private part of the economy is forecasted to recover on the back of an expansionary fiscal policy (+2.5%).

Based on the most recent outlook of the IMF the global economy is forecasted to grow by 3.4% in 2017 after 3.1% in 2016. This growth acceleration is expected to be broad based, driven by advanced as well as emerging market economies.

Oil, Inflation and Interest Rates GDP and Fiscal Indicators

Tadawul Equity Market External Balance

Global Economy GDP Growth Rates

source: GASTAT, MOF, RC source: Bloomberg, SAMA, RC

source: SAMA, RC

source: Bloomberg

source: IMF

P/E-ratio = Price/ Earnings-ratio , P/B-ratio = Price / Book-ratio

all ratios on trailing basis except 2017 forecast (consensus forward-ratios)

2012 2013 2014 2015 2016 2017f

Real GDP Growth

Overall economy 5.4 2.7 3.7 4.1 1.4 0.5

Non-oil Private sector 5.6 7.0 5.4 3.4 0.1 2.5

Government sector 5.3 5.1 3.7 2.7 0.5 0.2

Oil sector 5.1 -1.6 2.1 5.3 3.4 -1.1

Fiscal Balance and Government Debt

Fiscal Balance in bln SAR 374 180 -71 -366 -297 -185

Fiscal Balance in % GDP 13.6 6.4 -2.5 -15.0 -12.4 -7.2

Government debt in bln SAR 99 60 44 142 317 437

Government debt as % GDP 3.6 2.1 1.6 5.8 13.2 17.0

2012 2013 2014 2015 2016 2017f

Oil Prices and Production (yearly average)

Brent price (USD pb) 111.7 108.7 99.5 53.7 44.1 55.0

WTI price (USD pb) 94.1 98.0 92.9 48.8 43.3 53.0

OPEC Basket price (USD pb) 109.5 105.9 96.2 49.5 40.7 52.0

KSA oil production (mln bd) 9.8 9.6 9.7 10.2 10.5 10.2

Inflation and Interest Rates (year end)

CPI Inflation (yearly average) 2.87 3.52 2.68 2.18 3.50 1.90

3M SIBOR SAR 0.99 0.96 0.86 1.55 2.04 2.50

Reverse Repo Rate 0.25 0.25 0.25 0.50 0.75 1.25

Official Repo Rate 2.00 2.00 2.00 2.00 2.00 2.50

2012 2013 2014 2015 2016 2017f

Trade and Current Account

Trade Balance in bln SAR 925 835 690 166 205 285

Trade Balance in % GDP 33.6 29.9 24.4 6.8 8.5 11.1

Current Account in bln SAR 618 508 277 -213 -97 -41

Current Account in % GDP 22.4 18.2 9.8 -8.7 -4.0 -1.6

2012 2013 2014 2015 2016 01/17

Key Figures (period end)

Total Return in % 9.3 30.2 0.7 -14.6 8.2 n.a.

P/E-ratio 14.4 16.4 18.2 15.9 17.2 14.5

P/B-ratio 1.8 2.0 2.1 1.6 1.7 1.5

RoE 12.3 12.2 11.5 10.2 9.7 10.6

2012 2013 2014 2015 2016f 2017f

World 3.4 3.3 3.4 3.2 3.1 3.4

Advanced Economies 1.5 1.2 1.8 2.1 1.6 1.9

USA 2.8 1.5 2.4 2.6 1.6 2.3

Euro Area -0.6 -0.4 0.8 2.0 1.7 1.6

Japan 1.4 1.6 0.3 1.2 0.9 0.8

United Kingdom 0.2 1.7 2.9 2.2 2.0 1.5

Emerging Market Economies 4.9 5.0 4.7 4.1 4.1 4.5

China 7.7 7.7 7.3 6.9 6.7 6.5

India 3.2 6.9 7.2 7.6 6.6 7.2

Russia 3.4 1.3 0.7 -3.7 -0.6 1.1

Brazil 0.9 2.7 0.1 -3.8 -3.3 0.2


Page 19

Disclaimer

The information in this report was compiled in good faith from various public sources believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated in this report are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable, Riyad Capital makes no representa-tions or warranties whatsoever as to the accuracy of the data and information provided and, in particular, Riyad Capital does not represent that the information in this report is complete or free from any error. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any financial securities. Accordingly, no reliance should be placed on the accuracy, fairness or completeness of the information contained in this report. Riyad Capital accepts no liability whatsoever for any loss arising from any use of this report or its contents, and neither Riyad Capital nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof. Riyad Capital or its employees or any of its affiliates may have a financial interest in securities or other assets referred to in this report.

Opinions, forecasts or projections contained in this report represent Riyad Capital's current opinions or judgment as at the date of this report only and are therefore subject to change without notice. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections which represent only one possible outcome. Further such opinions, forecasts or projections are subject to certain risks, uncertain-ties and assumptions that have not been verified and future actual results or events could differ materially.

The value of, or income from, any investments referred to in this report may fluctuate and/or be affected by changes. Past performance is not necessarily an indicative of future performance. Accordingly, investors may receive back less than originally invested amount.

This report provide information of a general nature and do not address the circumstances, objectives, and risk tolerance of any particular investor. Therefore, it is not intended to provide personal investment advice and does not take into account the reader’s financial situation or any specific investment objectives or particular needs which the reader’s may have. Before making an investment decision the reader should seek advice from an inde-pendent financial, legal, tax and/or other required advisers.

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Saudi Economic Chartbook - Riyad Capital Economic Chartbook...Saudi production and exports of crude...

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