Introduction
The processes and tendencies associated with the variations of the oil price are regarded as the key ruling forces of the global economy. Originally, oil is regarded as one of the strategic resources, and it is one of the most expensive goods in global trade. The changes in the GDP rate and the changes in unemployment rates are closely linked with each other, as the more citizens are employed, the more goods and services are produced.
On the other hand, the lowering of the GDP rate causes the inability of some enterprises to pay salaries, and unemployment grows. The aim of this paper is to analyze the GDP growth data, unemployment data, inflation data, oil price data and compare these rates in accordance with the tendencies, associated with the changes of these rates. Thus, the actual necessity of the analysis is closely associated with the matters of financial activity rates, like the GDP, unemployment, inflation, and price for oil are the four closely interconnected elements of the Saudi economy. Thus, the paper will be based on the data of price levels for the period 1980 – 2008. Additionally, the relations between oil prices, GDP, unemployment, and inflation will be regarded as the key ruling forces of economic development.
Data Collection
GDP growth
The GDP growth rates of Saudi Arabia represent the strong and stable development of the national economy in accordance with the global economic tendencies. Originally, the economy of this State is regarded as oil-based. As is stated by Clarke (2009) Saudi Arabia owns up to 25% of the world’s oil reserves and it is one of the key players among the OPEC members. The economic system in general is centrally planned. Up to 45% of the economic sector is formed by the petroleum sector. Additionally, this sector provides 45% of the GDP growth and up o 90% of export earnings. Up to 40% of the GDP is represented by the private sector. As it is stated by Cordesman (2008, p. 210):
Roughly five and a half million foreign workers play an important role in the Saudi economy, for example, in the oil and service sectors. The government is encouraging private sector growth to lessen the kingdom’s dependence on oil and increase employment opportunities for the swelling Saudi population. The government has begun to permit private sector and foreign investor participation in the power generation and telecom sectors. As part of its effort to attract foreign investment and diversify the economy, Saudi Arabia acceded to the WTO in 2005 after many years of negotiations.
From the perspective of this statement, it should be emphasized that the high oil incomes are associated with the large budget surpluses, thus, the government had an opportunity to allocate more resources for job training and decrease the unemployment rates.
Unemployment Data
These rates totaled up to 11,6% among males in 2009. The unemployment rate, in general, is defined by the development of oil and non-oil sectors of the Saudi economy. Thus the growth of GDP in 2005 caused the decrease of unemployment rates in 2006. The fact is that various sources reveal various rates. Originally, it is associated with the calculation of the unemployment rates within males only. Nevertheless, the actual rates will not differ essentially (Taecker, 2008)
The yearly data of unemployment represent the average quarterly rates of unemployment within every particular year. Originally, the actual necessity to analyze the rates of unemployment is closely associated with the development of the oil sector economy in Saudi Arabia. Thus, the development of the infrastructure and oil extraction sphere, in general, helped to decrease the unemployment rates in the State.
Actually, the industry involves only 21% of the employed population. Up to 54% are in the service sphere, and the rest 24% are in the private sector. The relation of the employment rates and oil sector is explained by the growing prices for oil, and the increase of oil export rates. Thus, the actual rates will vary depending on the GDP, which is defined by the market price of oil, and its products. (Taecker, 2008)
Inflation Data
Inflation data for the required period may be estimated only from the perspective of consumer prices. Thus, the changes in average consumer prices were subjected to essential changes for the period 1980 – 2009.
The inflation rates from the perspective of national currency valuations may be regarded as the indicator of oil market stability and reliability.
The growth of the inflation rates for the period 2007 – 2009 may be explained by the world financial crisis and the lowering of the oil export rates. Additionally, inflation may be explained by the decline of the international prices for food. As Clarke (2009, p. 137) emphasized:
The World Bank estimates that food prices dropped 12.1% compared to the year 2009. In spite of the fact that the drop in demand was triggered by the global recession, it is also attributed to a great extent to fears concerning foodstuffs calming down and settling in the housing and leasing sector, fears that pushed up prices in the first half of 2008.
Oil Price Data
The growth of the prices is closely associated with the plans of Saudi government to increase the extraction of oil and invest additional resources for the development of this sphere. Thus, as it is stated by Cordesman (2008), Saudi government plans to invest up to $46 billion for the development of three petrochemical projects. These projects will involve up to 150,000 technical workers. Thus, the unemployment rates will be essentially decreased, and the export of oil and products will increase. In accordance with Clarke (2009, p. 32): “The products, which will be included into the export supplies are ethylene, propylene, aromatics, polyethylene, ethylene oxide, chlorine derivatives, and glycol”
Relations and Tendencies
The relations that will be explained in this part of the paper define the key tendencies of economic development and the aspects of oil market expansion. Originally, these relations will be explained from the perspective of the regarded rates.
The Relation Between GDP & Unemployment
This link is evident, as the growth of GDP rates defines the growth of economic capacities and industrial powers in the State. Considering the instance of Saudi Arabia, it means the growth of the oil extraction and proceeding capacities, and development of the petrochemical projects. Thus, this development stimulates the growth of the industry production rates, and the necessity for additional human resources both qualified and not qualified. Thus, the actual relations of these rates are explained by the tendencies of demographic growth. Taecker (2008, p. 316) gives the following explanation:
The demographic variable – change in the population of the age of 15 to 60 – is significant in the employment function. This means that the growth of the active population exerts some pressure to expand employment so that labor productivity in the total economy is dampened.
The Relation Between GDP & Inflation
If the State economy is oriented at export, the inflation rates, and the valuations of the national currency define the rates of domestic economic growth. Thus, if the Saudi Riyal currency exchange rate drops, the GDP will decline. In accordance with the theoretical aspects of these relations, it should be emphasized that there is a variety of explanations considering GDP and Inflation relations.
The most applicable for the Saudi case is settled on the fact that the predictable and stable inflation rates define the predictable and stable GDP rates, as the growth is self-reinforcing by its nature, and inflation is the natural stopper, and simultaneously stimulator of stable GDP growth. Thus, the importance of these processes for the economy is evident, moreover, the link between them is explained by the actual economic rates.
The Relation Between Inflation & Unemployment
In general, the relation between these two concepts is complex and difficult for definite explanation. As it is stated by Cordesman (2008), there were two possible explanations of this relation. The most common is based on the statement that these two rates inversely depend on each other. In the light of this perspective, it should be emphasized that when inflation is low, the unemployment is high and vice versa.
The actual relation of the inflation and unemployment rates provides the number of problems. From the perspective of Phillips curve, the higher unemployment automatically means lower inflation as when the inflation happens, workers do not mention the real values of their salaries, and get lower payments. Companies are employing workers, and pay them low wages. The rates of these wages are lower in comparison with the actual consumers’ prices. When the workers find that the real wages have fallen, they claim for higher salaries, and the companies have to shorten personnel, and increase salaries for those who stayed.
The Relation Between Oil Prices & GDP
The actual relation of the GDP and oil industry is explained not only by the prices of Oil, but also on the volumes of oil and gasoline export. Thus, the growth of the prices may cause the fall of the export rates, which will not cause essential changes in GDP.
On the other hand, if prices are increased essentially, the consuming rates of oil will not fall lower than the global consuming minimum, as independently on the broad development of alternative fuel technologies, the dependence of the humanity on oil is still high. Thus, the GDP will grow. Nevertheless, the existence of other oil suppliers should be taken into consideration. Thus, the relation of the oil prices and GDP may be analyzed only from the perspective of export volumes and oil consumption rates: the higher prices mean lower consumption and export, which may cause the decline of GDP rates. Lower prices may cause higher consumption rates and higher GDP. Additionally, higher consumption rates (and export rates as a result), encourage the development of industrial capacities in Saudi Arabia, which inevitably causes the higher GDP rates.
Conclusion
Petrochemical industry in Saudi Arabia is the key ruling force of economy development. Thus, the situation on the global oil and gasoline market defines the rates of Saudi national economy growth and development. Such components as unemployment, inflation, GDP and oil prices are closely linked with each other in Saudi economy, and the relation of these components in every particular moment defines the economic processes in domestic economy of the State. The rates, stated in the data section are analyzed in accordance with the actual situation on the oil market and the processes of national Saudi economy.
Reference List
Clarke, K. (2009). A Modernization Paradox: Saudi Arabia’s Divided Society. Harvard International Review, 29(3), 30.
Cordesman, A. H. (2008). Saudi Arabia: Guarding the Desert Kingdom. Boulder, CO: Westview Press.
Taecker, K. (2008). Saudi Arabia and the GCC: Exploring for Growth in a Troubled Global Economy. Middle East Policy, 6(2), 29-35.