Saudi Arabia’s strongholds as a dynamic investment destination
The global financial markets can never be accused of lacking news value, and all signs indicate that 2024 will be no exception. There are still many unanswered questions lingering from last year that have left global economic commentators in limbo: Will the US succumb to a recession? Is inflation really under control? Will central banks start easing monetary policy? And how will geopolitical tensions feed into economic outlooks and market performance?
There are also multiple headline-grabbing events looming on the horizon, with 2024 set to be one of the biggest election years in history. Over 50 countries will head to the polls during the year, including Russia, Taiwan, the UK, India, El Salvador and South Africa. These presidential and legislative contests will have huge implications for global economies. Adding to this, the pressure from ongoing geopolitical tensions, and you begin to see just what a pivotal year lies ahead for the global economy.
It will also be an important year for the Middle East, especially Saudi Arabia, as it continues to evolve into a global economic superpower. Indeed, some of the world’s largest corporations and economies are already directing their attention toward Saudi Arabia as their next investment partner of choice. It is, therefore, important to know exactly what lies ahead for the Kingdom’s economy over the next 12 months.
Before we turn our attention to movements specific to Saudi Arabia, let’s set the global economic scene.
A global snapshot
We expect global gross domestic product growth to slow marginally to 2.9 percent in 2024 from 3.1 percent in 2023.
Some of the key drivers behind this are outlined in our global outlook for 2024, which we have called “Sailing with the Wind.” It outlines how the US and other major economies are likely to witness sharply slower growth and sliding inflation during 2024.
One of the key questions for the year ahead is just how much US and global economic growth will slow after the rapid policy-tightening cycle. Despite market expectations oscillating between hard landing and no landing expectations through the past year, we believe US growth is set to slow significantly as higher interest rates bite.
A potential manufacturing rebound could help the overall economy avoid a hard landing, at least in the first half of 2024, but the risk of a US recession remains high later in the year. Europe faces a much higher risk of a prolonged recession or stagnation. In China, growth may initially surprise on the upside given how negative expectations are, but the long-term debate about China’s equilibrium growth level is likely to continue.
Saudi Arabia attracts global investments
Looking specifically at Saudi Arabia, as outlined in our global economic outlook 2024, “A Soft Landing, With Risks,” we fully expect the robust and already incredibly successful Vision 2030 blueprint to continue reaping significant rewards.
The oil sector will, of course, continue to be important. However, we predict that it will remain at a steady average of 9.6 million barrels per day during 2024, which will lead to higher growth in the oil sector in 2025. Instead, it is the non-oil growth, projected at a healthy 5 percent during 2024, that will attract the most scrutiny from the international investment community.
This important growth will happen largely because of forward-looking innovations designed to attract global talent and international investment opportunities. One such initiative is the addition of five new products to the premium residency program.
Launched in 2019, this scheme aims to allow eligible foreigners to live in the Kingdom, offering benefits such as exemption from paying expat and dependents fees and visa-free international travel.
Additionally, there have been important launches, including the Kingdom’s largest issuance of US dollar bonds since 2017. The three-part deal encompasses bonds maturing in 2030, 2034, and 2054. Medium-term growth prospects are further anchored by healthy consumption, which has proven resilient to higher rates thanks to low inflation, and a planned hydrocarbon capacity expansion by 1 million bpd to 13 million bpd by 2027. Turning to some notable specifics, we expect to see “high for long” local interbank interest rates, even as we forecast monetary easing in the second half of 2024. We think the Saudi Arabian interbank offered rate may remain elevated, even once the Fed starts to cut rates, given structural shifts in domestic liquidity. Reverse repo volumes — a measure of excess liquidity in the banking system — continue to point to liquidity tightening.
Private-sector credit growth has slowed to 10 percent year-on-year by April from the 2022 average of 14 percent, specifically in the mortgage space. This should help to smooth property prices after a rapid acceleration in Riyadh. We raise our 2024-25 policy repo rate forecasts to 5.5 percent from 4.75 percent and 4.0 percent from 3.75 percent, in line with our latest Fed forecasts.
A busy year ahead, both globally and for Saudi Arabia itself — one that will keep analysts and commentators incredibly busy.