Daily Update: Saudi Vision 2030 Will Require Substantial but Manageable Debt

Today is Monday, May 13, 2024, and here’s your?curated selection of essential intelligence on financial markets and the global economy?from?S&P Global.?Subscribe?to be notified of each new?Daily?Update.?

Saudi Vision 2030 is the Saudi Arabian government's bid to modernize and diversify the country’s economy and society beyond its traditional strength in fossil fuels. There will be sizable up-front costs in achieving the transformation plan, which is expected to require about $1 trillion in investments over several years. Should the plan succeed, S&P Global Ratings anticipates longer-term economic and social dividends. To fund the ambitious programs associated with Vision 2030, S&P Global Ratings anticipates that the government and its sovereign wealth fund will have to ramp up debt issuance. However, government assets and debt are expected to remain strong through 2030. Real estate developers in Saudi Arabia stand to benefit substantially from forecast population growth and homeownership targets under Vision 2030.

Saudi Arabia’s Public Investment Fund (PIF) is expected to be a major funder of Vision 2030 initiatives. The PIF intends to invest $40 billion per year in the Saudi economy. As of the end of 2023, the PIF held $925 billion in assets under management. The fund’s assets under management are projected to increase to about $1 trillion by 2025, funded mainly by debt issuance. S&P Global Ratings also expects banks and capital markets to contribute a significant amount to the funding of Vision 2030 projects.?

In the last few years, companies in Saudi Arabia have been cautious about spending due to high interest rates. Most of the lending growth in the Saudi banking system can be attributed to a rise in mortgages. Saudi banks are in relatively good shape, with strong asset-quality indicators and capitalization overall. However, S&P Global Ratings cautions that higher leverage could pose problems for the Saudi banking system.

The Saudi government has created policies to increase population growth and homeownership as well as to encourage more expats to live and work in the country. S&P Global Ratings anticipates the country’s population to grow 3%-4% annually over 2024–2027. This population increase should drive steady demand for housing, which could spur Saudi real estate developers to move from their traditional reliance on banks for funding and increasingly tap into capital markets.

While many signs point to increasing reliance on debt financing, the Saudi economy is projected to grow an average 3.4% annually in 2024–2027, supported by large public and private investments and robust consumption growth. The non-oil sectors, which are the focus of Vision 2030, currently account for about 60% of GDP.

As capital markets play a more significant role in Saudi growth, the country can leverage its stock exchange, the Middle East's largest and most liquid bourse, with a market capitalization of $3 trillion. Foreign interest in Saudi Arabian financial markets is growing due to increasing financing and hedging activity.

Today is Monday, May 13, 2024, and here is today’s essential intelligence.

Written by Nathan Hunt.

Economy

Corporate Results Roundup Q1 2024: Recovery Continues Excluding Commodity Sectors But Remains Fragile And Fragmented

The global Q1 2024 results season for rated nonfinancial corporates is halfway through. Based on current results earnings are still declining, but the picture is more encouraging if volatile commodity components are excluded. The recovery can be characterized as fragile and fragmented, with marked regional and industry differences. Both North and Latin America have to-date reported positive sales and EBITDA growth versus the same quarter a year ago, while Europe and Asia-Pacific continue to report contraction. Industrial cyclicals continue to experience contraction, with positive global industry growth concentrated in leisure-related consumer sectors, technology, healthcare and aerospace and defense.

—Read the article from S&P Global Ratings

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Capital Markets

Private Equity Deal Value Jumps 65% YOY In April

Global private equity and venture capital deal value jumped 64.6% in April to $65.06 billion from $39.53 billion the same month a year earlier, according to S&P Global Market Intelligence data. The number of deals, meanwhile, went down to 968 from 1,025 deals in April 2023. Year to date, total deal value stood at $190.04 billion from $168.71 billion in the first four months of 2023.

—Read the article from S&P Global Market Intelligence

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Global Trade

Global Trade Revives Amid Renewal Of Worldwide Goods Exports

The worldwide Purchasing Managers' Index (PMI) surveys compiled by S&P Global Market Intelligence indicated that global trade expanded at the start of the second quarter of 2024, thereby concluding the contraction streak of just over two years. The seasonally adjusted Global PMI New Export Orders Index posted 50.6 in April, up from 49.8 in March. Although marginal, the latest rise in global trade conditions signalled the first improvement since February 2022. Moreover, the latest uptick in trade conditions was broad-based with both manufacturing and services export business rising in April.

—Read the article from S&P Global Market Intelligence

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Sustainability

EU’s Hydrogen Bank Auction Clears Below 50 Euro Cent/Kg, Funding 1.5 GW

The first auction under the European Hydrogen Bank mechanism has cleared well below expectations, with the seven winning projects bidding at 37-48 euro cent/kg (40-51 cents/kg) for a total 1.5 GW of electrolysis. The EU will provide Eur720 million to the projects, which will produce 1.58 million mt of green hydrogen over 10 years, the European Commission said.

—Read the article from S&P Global Commodity Insights

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Energy & Commodities

Higher And More Stable Oil Prices Are Pushing Oil Sands Growth Higher … Again

S&P Global Commodity Insights expects Canadian oil sands production to approach 3.8 million b/d by the end of the decade. This is 90,000 b/d, or 3%, higher than the prior outlook and marks the second upward revision in recent years. This also marks the first time S&P Global Commodity Insights has published its outlook to 2035 where a modest decline begins to emerge from older operations.

—Read the article from S&P Global Commodity Insights

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Technology & Media

Listen: MediaTalk | Season 2 Ep. 12: Broadband's Growth Outlook as Subsidy Program Ends and Fiber Expands

In this episode, MediaTalk host Mike Reynolds sits down again with S&P Global Market Intelligence Kagan analyst John Fletcher, who specializes in multichannel and broadband. John shares his outlook on how the broadband industry is set to grow in both the near and distant future. On one hand, funding for a key federal subsidy is set to end this month and legislators have yet to agree on a plan to extend it. As a result, tens of millions of low-income households could once again be priced out of broadband. On the other hand, fixed wireless is continuing to roll out across the country, driving subscriber growth for the broadband industry as a whole. What do both of these things mean for the cable industry? And what do they mean for efforts to close the digital divide? And where do low-earth orbiting satellites fit into all of this? Mike and John dig into these questions and more.

—Listen and subscribe to the podcast from S&P Global Market Intelligence

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