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Saudi economy set to grow 4.2pc says study

Riyadh: Sun, 26 Dec 2010

Saudi Arabia’s economy is expected to grow 4.2 percent in 2011 and government spending will continue to be the main driver of growth, according to a study.

Growth in both the oil and non-oil sectors will pick up and oil production is forecast to respond to rising demand, said the Jadwa Investment  report.

High government spending will remain the main driver of the non-oil economy, supported by greater bank lending. The fastest growing sectors of the economy, utilities and construction, rely heavily on government spending.

Inflation will stay at elevated levels in 2011, averaging 5.3 percent. Rents will remain the leading source of inflation; other inflationary pressures will be external, mainly in the form of commodity prices, it said.

Domestically-driven inflationary pressures should still be muted, though there is a risk of a gradual increase in inflation expectations, said the report.

“Although inflation will be well above the historical norm, we expect interest rates to remain very low and do not anticipate the adoption of new policy measures to tackle rising prices. We do not foresee any changes to the riyal’s peg to the dollar,” the report added.

While the economic picture will improve, performance will still be very heavily dependent on the government. Tough credit conditions and a weak global economy will keep growth of the non-oil private sector below that of the boom years around the middle of the last decade and activity will be dominated by government contractors, it said.

The report said the budget surplus next year will be SR106 billion as the oil price will be higher than that used in the budget. The oil revenues could total SR674 billion, while non-oil revenues will be SR90 billion, it said.

The report alsos aid spending will be above the budgeted level. “Over the last ten years actual government spending has averaged 21 percent higher than the budgeted amount. The extent of overspending eased in 2010, when it was 16 percent, the lowest level since 1999. Given the more prudent expenditure control together with the low rise in spending budgeted for 2011, we forecast total expenditure of SR658 billion,” it said. – TradeArabia News Service

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