FINANCE OUTLOOK 2023

 Facing rising inflation, the Federal Reserve—tasked with maintaining stable price growth—repeatedly has enacted large interest rate increases throughout 2023 with the aim of cooling the economy and, in turn, slowing inflation. The longer inflation persists and the higher the Federal Reserve increases interest rates in response, the greater the risk to the economy. Overall government revenues were forecast to exceed day-to-day government spending from 2023–24 onwards every individual country trying to improve their economic growth throughout the year and most of them are in stable economic position but some of them are facing inflations and financial crisis.

We believe that these issues will be addressed in 2023 and market conditions will begin to normalize. High inflation and tighter monetary policy are two important reasons why the world economy is slowing down, and we think markets still underestimate where rates may end up. This coming year could also be the time to position portfolios for the long term, focused on high-conviction thematic such as national security, climate resilience and innovation, and sustainability.

KINGDOM OF SAUDI ARABIA (KSA)

Saudi Arabia will be the fastest growing of the world’s largest economies in 2023. Economic performance is being boosted by high energy prices and rising oil and gas production, large-scale investment in the energy and non-energy sectors, and the successful rollout of an extensive covid19 vaccination programed. The Kingdom’s economy is recovering at a fast pace. A major contributor to economic growth this year will be the oil sector, with the latter likely to grow at the fastest rate. Economic growth will also be supported by the non-oil sector, which will benefit from the recovery in domestic demand and progress on the implementation of economic diversification projects. Oil GDP accounts for around a third of nominal GDP and non-oil sector performance is linked in part to oil-funded investment. The fiscal balance will return to positive territory in 2023. Supported by an energy sector windfall and buoyant non-energy business activity, while the public debt stock—which has been on a rising trend for much of the past decade—will shrink in absolute terms and relative to GDP.

Saudi Arabia is taking impressive steps to improve the business environment, attract foreign investment and create private-sector employment. These initiatives, combined with governance and labor market reform, have made it easier to do business increased the number of industrial facilities, and raised female participation in the labor force.

Causes of Inflation in KSA:

Inflation in Saudi Arabia is measured based on the growth rate of the Consumer Price Indexes (CPIs), released by the General Authority for Statistics on a monthly basis. Gas is responsible for preparing and implementing surveys, research, and studies on all indicators of statistical data and information within Saudi Arabia. Two primary sources of inflation are cost-push and demand-pull inflation. When the aggregate supply of goods and services produced within a country decreases as a result of increasing production costs, cost-push inflation occurs. On the other hand, when the aggregate demand of goods and services exceeds the aggregate supply, demand-pull inflation arises.

• Demand-pull inflation happens when the demand for certain goods and services is greater than the economy’s ability to meet those demands. When this demand outpaces supply, there’s an upward pressure on prices — causing inflation.
• Cost-push inflation is the increase of prices when the cost of wages and materials goes up. These costs are often passed down to consumers in the form of higher prices for those goods and services. An example of this would be lumber, as lumber is an input good for houses. When the cost of lumber spiked as much as 400%in 2021 it had an impact on the increase in housing prices resulting in inflation.
• Fiscal and Monetary Policies plays a critical role in the economic system. Saudi Arabia implements a countercyclical fiscal policy to maintain price and financial stability. t the exchange rate targeting succeed in minimizing the negative and positive trade shocks, and the countercyclical fiscal policy choice has been working well in stabilizing the growth path and reducing global crisis impact.

Import: The monetary expansion due to the pigged currency and high oil prices may seem harmless on causing the inflation rate to rise significantly in Saudi Arabia. However, that does not mean that oil prices have no impact on causing inflation rate to increase in Saudi Arabia. Several sources found that the oil prices shock causes Saudi import values to go up, which in return cause inflation rate to increase through imported goods and services.

Housing and Food Prices: Rent and food average costs, especially fresh fruits and vegetables, have increased significantly, there are a number of factors affecting the pressure on rent price in Saudi Arabia. First, Private homes have been reaching unrealistic values, which make it very difficult for many people to afford buying new houses due low income.

Oil Prices: Oil producing countries such as Saudi Arabia, higher oil prices seem to be a blessing on the surface as oil is a major contributor to the country’s GDP and balance of payment. Oil is an input for the majority of the industries. There is another dimension for oil price effect on inflation is that previously expensive alternative fuels are now feasible

Conclusion

Strong oil production growth and a sturdy recovery in the non-oil sector is expected to drive 2023 growth in Saudi Arabia. Profitability is rising across the industry on rising prices and demand growth, High levels of competitiveness and a more diverse raw material slate ensured that the powerful growth in Saudi petrochemicals output and improving margins, Fiscal performance in Saudi Arabia is improving on the back of the global economy rebound tied to the kingdom’s emergence from the Coronavirus pandemic, Looking forward, the VAT rate increase, the higher oil prices and production, the expiration of Coronavirus related spending, the government continued reforms to improve spending efficiency and achieve fiscal discipline, as well as continuing with transferring the investment burden to the state funds led by PIF are expected to help growing the Kingdom’s fiscal surplus at large.