Saudi Economy Expected to Grow in 2015

Despite the shock of low oil prices, Saudi Arabia’s real GDP expects to grow 3.5 percent for 2015, according to the Saudi Gazette. Increased spending and oil production will continue to advance the economy, but growth will slow down in 2016 as lower oil prices affect spending.

Despite the shock of low oil prices, Saudi Arabia’s real GDP expects to grow 3.5 percent for 2015, according to the Saudi Gazette. Increased spending and oil production will continue to advance the economy, but growth will slow down in 2016 as lower oil prices affect spending.

Saudi Arabia has weathered the low-price atmosphere better than other oil-producing nations, but this does not negate the necessary structural reforms needed to diversify the economy for the sake of higher growth. While the UAE is taking steps to shift its economy away from oil, Saudi Arabia’s economic model solely relies on crude production, but things have changed to an extent. For instance, the Saudis opened the Tadawul, a Saudi stock exchange for foreign investment. Also, the Saudis plan to strengthen local economies by handing out certificates and debt while getting more people hired in the private sector. Saudi Arabia has a rising middle class and growing population, and with consumption on the rise, the monarchy is finding ways to satisfy public needs. The Saudis are also focusing more on petrochemicals and refining. Since the Kingdom is processing heavier crude, officials have set up refining facilities in such nations as South Korea and China to process lower-grade varieties.

However, Saudi Arabia remains focused on crude production like never before. The Saudis currently pump over 10 million barrels a day. For one thing, energy demand in the Kingdom has grown at a rate of 6.0 percent per year, which is more than most nations around the world, and the natural gas extracted with the oil is needed to provide energy to industrial and residential areas. Oil is also a key element in powering much of the nation, including water desalination plants. Luxury demand shows no sign of waning in the Kingdom, fueling demand for such energy commodities as diesel, gasoline and jet fuel. Fuel demand has skyrocketed 60 percent since 2005, forcing Saudi Arabia to become a net importer of fuel.

The head of OPEC is also maintaining heavy oil production to maintain its hold on the market, especially as North American production has crowded out some of OPEC’s market share. The Saudis have reacted by pumping more oil amid weak prices to stifle the competition. The Kingdom can withstand low oil prices, but the same cannot be said for Canadian and U.S. producers who have struggled to maintain production, as more funds are needed to extract oil from shale rocks in North America. One advantage the Saudis have is cheap oil that the world market calls for, but the monarchy needs to maintain production to prevent economic setbacks and job cuts that could lead to political and economic instability, which is not needed as the new King Salman solidifies his power.