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Saudi economy set for recovery in fourth quarter

Saudi Arabia’s economy will see a recovery in the fourth quarter “barring any other major public financial events at family businesses,” Riyadh-based Jadwa Investment Co. said today.
“While recent data suggests that the worst may be over, we do not yet see consistent signs of improvement and think that problems with some family business have pushed back the prospect of recovery into the fourth quarter,” Jadwa analysts Paul Gamble and Brad Bourland wrote in an e-mailed report. “Confidence is rising and growth should pick-up modestly over the remainder of the year.”

Ahmad Hamad Algosaibi & Bros. and Saad Group are struggling to repay debt after the credit crisis and falling oil prices triggered the country’s first recession in a decade. Algosaibi said in a May 22 filing in New York that Maan al-Sanea, the owner of Saad Group, used “falsified documents” to obtain $10 billion. Saad Group will respond to the claim through the judicial process, it said Aug. 1.

“Owing to worries about family business and their own exposures, banks have become more cautious in extending credit to the whole of the private sector,” the report said.
The central bank of the world’s largest oil producer is drawing on assets to fund a five-year, $400 billion spending program to help the country through the financial crisis. Oil prices have plummeted from last year’s peak of $147.27 a barrel to $68.02 on Sept. 4.

The bank “absolutely” won’t buy up debts from the two family businesses that defaulted after borrowing more than $15 billion, Muhammad al-Jasser, Saudi Arabia’s central bank governor, said in an interview with Bloomberg News yesterday.
Saudi inflation slowed to 4.2 percent in July, the lowest level since July 2007. Inflationary pressures are easing in the third quarter as the prices of steel, cement and food fall, the bank said Sept. 1.

The kingdom’s benchmark index, the Tadawul All Share Index has gained 18 percent this year after sliding 56 percent in 2008. Jadwa estimates a fair value of 6,200 for the Saudi index by year-end. The index closed today at 5,667.94.

“Financial performance of listed companies has been disappointing so far this year,” the Jadwa analysts said. “We think it will improve in the second half.”

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