Non-oil sector to drive Saudi growth

A surge in the private sector will drive growth in Saudi Arabia in 2010 and the following two years as the largest Arab economy is expected to maintain high public spending in the wake of the global fiscal crisis.

Forecasts by a key Saudi investment company showed the kingdom’s real GDP would sharply rebound by around 3.8 per cent this year after recording one of its slowest growth rates of 0.6 per cent in 2009 because of the 2008 crisis.

In 2010, the non-oil sector is projected to swell by around 3.8 per cent against 3.7 per cent growth in the oil sector, said NCB Capital, an offshoot of National Commercial Bank, the largest bank in Saudi Arabia by assets.

Non-oil growth is forecast to pick up by 4.2 per cent in 2011 against an increase of 3.9 per cent of the hydrocarbon sector, NCB Capital said in a study.

The non-oil sector, which has steadily grown over the past decade, will also drive growth in 2012, when it is projected to pick up by 4.5 per cent, said NCB Capital, which estimated growth in the oil sector at 4.1 per cent.

The report showed overall real GDP growth would accelerate to 4.2 per cent in 2011 and around 4.4 per cent in 2012, close to IMF projections.

Saudi Arabia’s real GDP growth swelled to one of its highest levels of 4.5 per cent in 2008 following a surge in crude prices and the kingdom’s oil output, higher public spending and high growth in the private sector.

But growth plunged to 0.6 per cent in 2009 due to a steep cut in the country’s oil production in line with a collective agreement by the 12-nation Organisation of Petroleum Exporting Countries (Opec) to trim supplies to prop up prices.

The economy of the world’s oil powerhouse had been projected to shrink in 2009 but analysts said this was prevented by a massive increase in public expenditure within a post-crisis fiscal stimulus programme.

NCB Capital expected the Kingdom’s nominal economy to massively rebound by 10.1 per cent this year and to 11.9 and 12.4 per cent in 2011 and 2012 respectively after slumping by about 21.1 per cent in 2009 as a result of lower oil prices.

NCB Capital forecast a recovery in the Saudi economy this year despite a sharp slowdown in domestic credit as most banks have adopted a tight lending policy and the private sector’s appetite for credit has largely waned.

“The performance of the Saudi economy has been characterized by considerable resilience in the face of the global economic slowdown. While this show of strength highlights the effectiveness with which the Saudi government mobilised its reserves to support economy activity, it also reflects the kingdom’s increasingly diversified economy resulting from years of proactive initiatives and a relatively stable banking sector,” NCB Capital said.

It said growth last year was mainly driven by the government sector, which increased 4.4 per cent in 2009. But it added the private sector also recorded strong growth despite its decline to 3.5 per cent from 4.8 per cent in 2008.

The study said the fall last year was above all driven by the oil sector, which contracted by a significant 6.7 per cent under the “dual pressure” of a 70 per cent drop in crude prices and production and cuts in the Opec quota system.

“We expect real GDP growth of 3.8 per cent in 2010, which is down slightly from our projections from the beginning of 2010 of around four per cent. This reflects the tentative nature of the private sector recovery in the face of global risks caused by the sovereign debt crisis in the euro zone,” it said.

“In addition, although the oil market remains subject to strong conflicting pressures, the increased uncertainty about demand is expected to contain the average price for the year to around $75-76 per barrel.”

The study expected Saudi Arabia’s current account surplus to decline to 3.1 per cent this year from 7.1 per cent in 2009 as a result of the fall in last year’s GDP. But the surplus is projected to pick up to 9.8 per cent in 2011 and around 15.8 per cent in 2012, according to NCB Capital.

As for the fiscal balance, the report said a budgeted deficit could turn into a surplus of 4.7 per cent this year. It forecast the surplus at 5.1 per cent in 2011 and nearly 5.5 per cent in 2012.

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