(MENAFN - Arab News) Economic growth in Saudi Arabia remains on track as slight moderation in crude production has been compensated by rise in the prices. Anecdotal evidence suggests that economic activities in nonoil sector are also strong. Inflation remains flat at 5.3 percent in January. Measures of money supply accelerated sharply in 2011 even as credit growth to private sector almost doubled. SAMA's (Saudi Arabian Monetary Agency's) reserve assets crossed SR2 trillion mark, a record level. The assets have grown more than three times since 2005, according to a report by Al-Rajhi Capital.
According to the OPEC's recent report, oil production in Saudi Arabia moderated slightly in January though remained at high level. The average daily crude production was 9.6 million barrel in January compared to a daily average production of 9.72 million barrel in December.
On an average, global oil prices were higher by 2-4 in January compared to December.
The Al-Rajhi Capital report said inflation remained flat at 5.3 percent in January as rise in rent category negated moderating effect of food inflation and other expenses and service. Rent category jumped from 8 percent in December to 9.1 percent in January whereas food inflation moderated slightly from 4 percent to 3.9 percent. Other expenses and service also moderated from 9.6 percent to 8.1 percent. However, other smaller components have witnessed slight acceleration in price rise. For instance, home furniture category increased from 3.1 percent to 3.2 percent, education and entertainment rose from 3.4 percent to 3.5 percent and Fabric, clothing and footwear increased from 2.1 percent to 2.5 percent.
However, increase in inflation index on monthly basis continued to moderate to 0.1 percent in January compared to 0.2 percent in the previous month. Given the inflation dynamics, it is likely to continue above 5 percent in the next couple of months.
The report said reserve assets of SAMA have crossed SR2 trillion mark at the end of 2011. Total reserve assets grew by SR360 billion to reach SR2.09 trillion at the end of 2011. This was the second largest addition to the total reserve assets in a year after 2008. The sharp increase in the reserve assets was mainly due to sharp jump in trade surplus which were estimated to be SR917 billion for the year 2011. Note that both export and trade surplus reached record levels. But addition to total reserve assets was almost SR154 billion less than the previous peak of 2008.
Export has steadily grown over the past decade punctuated by a decline in 2009 when global economic crisis affected the crude price and export volume as well. However, export regained its momentum in 2010 and it crossed the 2008 peak in 2011. Export jumped by 37 percent in 2011 to reach record level of SR1.29 trillion on the back of 31 percent jump in 2010. On the other hand, import growth has been relatively sluggish over the last decade. Even in the last two years growth in import was just 2 percent and 12 percent in 2011 and 2010 respectively. The widening gap between export and import created large trade surplus. The surplus reached a record level to SR917 billion in 2011, crossing the peak of 2008 (SR798 billion).
The data available to the year 2010 suggests that trade surplus was SR576 billion whereas income account surplus was SR26 billion. However, service account deficit was SR247 billion and current transfers account deficit was SR105 billion. The sum of all four accounts provides us current account balance which was SR250 billion in that year.
The Al-Rajhi Capital report said net direct investment was SR66 billion whereas net portfolio and other investments outflows were SR65 billion and SR28 billion respectively in 2010.
Growing trade surplus has resulted into rising reserve assets of Saudi Arabia as the assets have grown more than three times since 2003 from SR580 billion to SR2.03 trillion at the end of 2011.
Reserve position with International Monetary Fund jumped 145 percent to SR18.2 billion in 2011 whereas Special Drawing Rights (SDR) declined slightly. Reserves in terms of foreign currency and deposits abroad increased 24 percent to reach SR542.8 billion. Investment in foreign securities increased 20.8 percent to touch SR1427.8 percent. Thus, almost 70 percent of total reserves remain invested in foreign securities. Foreign currencies and deposits abroad constitute 27 percent of the total reserve assets.
Gold, SDR and reserve position with IMF remained fairly small whereas share of foreign currency and deposits has declined from 34.6 percent in 2005 to 26.8 percent in 2011. The largest share of assets is held in foreign securities and the share has grown from 63.7 percent in 2005 to 70.4 percent in 2011.
Measures of money supply growth especially M2 and M3 witnessed a sharp jump in 2011. M2 growth jumped to 15.4 percent in 2011 compared to 9.3 percent in 2010 whereas M3 growth accelerated to 13.3 percent in 2011 from 5 percent in the previous year. On the other hand, M1 growth remained high though acceleration in the narrow measure of money supply was muted as it grew by 21.6 percent in 2011 compared to 19.9 percent in 2010.
Demand deposits had jumped by 33 percent year-on-year in April 2011 due to government transfers to general public, the Al-Rajhi Capital report said.