Saudi Arabia’s economy recorded one of its best periods in 2012 when it surged by 6.8 per cent but growth is expected to dive by more than 50 per cent despite the approval of a record high budget, according to a key Saudi investment firm.
The Riyadh-based Jadwa Investments said Saudi Arabia, the largest Arab economy and world’s top oil exporter, could overshoot spending again this year but growth would not be as high as last year since the country sees oil production at around 9.6 million barrels per day, slightly lower than in 2012.
“We expect 2013 to maintain the solid growth momentum albeit at slower pace. While overall economic growth will slow, this will be due to lower oil production,” it said in a study sent to Emirates 24/7 following the approval of the budget on Saturday.
It said greater execution of government projects, especially in the infrastructure sector, means that non-oil growth should maintain the current solid performance.
Bank lending will remain supportive and regional unrest will be less of a drag on domestic performance, the report said.
Inflation could slip as domestic spending pressures recede and external pressures stay subdued, though the risks are on the upside given the outlook for the US dollar.
The report expected oil prices to slightly fall as the weak global economy puts pressure on oil demand and rising output from Iraq and North America boosts supply.
“Economic growth in Saudi Arabia is forecast to fall to 3.1 percent in 2013, owing to lower oil production and large base-effect for the nonoil sector. High government spending will continue to be the engine of the non-oil economy, supported by greater bank lending and healthy domestic consumption demand,” Jadwa said.
“Within the non-oil sector, we expect the government’s real GDP to expand 4.9 percent year-on-year due to higher capital spending, while the non-oil private sector is expected to expand by 7.8 percent. In particular, we expect utilities, construction, transportation and retail, the main beneficiaries of government spending, to be the fastest growing sectors of the economy.”