Robust public spending outlays and a moderate return in private sector activity supported stronger money supply and credit growth in Saudi Arabia in June 2010, according to the latest central bank data says a report by Banque Saudi Fransi.
According to the report oil prices at or above $75 a barrel will continue to support confidence and fiscal stability in the kingdom. Nevertheless trade flows continue to be volatile demonstrated by a slowdown in new letters of credit on the one hand and recent data suggesting a recovery in imports on the other.
Banks continue to adopt a watchful attitude towards extending new credit as demand from the private sector remains subdued. Bank credit growth, while improving, continues to fall far short of double-digit levels of 2007 and 2008. Although the KSA government has provided the largest fiscal stimulus in the G20 as a share of GDP, the investment appetite in the private sector has still not picked up. Credit growth remains sluggish and is driven almost solely by government funded projects.
As a result most new loans are project oriented rather than short-term working capital for private firms. The government will therefore need to do much more to ensure a trickledown effect for SMEs to benefit from credit growth.
An upward trend in retail and consumer spending is also evident but Saudi Arabia remains vulnerable to a global economic slowdown. In summary, the latest monetary indicators appoint to a sustainable recovery that should take hold in the second half of the year.
Source: Monetary Watch by Banque Saudi Fransi