Saudi Arabia’s nominal economy jumped by around 24.1 per cent in the first half of this year because of higher oil prices and massive pubic investments, a key investment company in the Gulf Kingdom said on Monday.

Growth was as high as 34.1 per cent in the first quarter but plunged to nearly 15.3 per cent year on year in the second quarter of 2010, the Riyadh-based Jadwa Investments said in a study sent to Emirates 24/7.

“Public sector growth was stronger than that for the private sector. There has been considerable investment in the public sector in recent years,” it said.

“Oil was by far the fastest growing sector, reflecting higher crude prices. Trends in oil prices explain the bulk of the slowdown in growth in the second quarter… year-on-year non-oil growth slipped to 7.3 per cent in the second quarter from 10.7 percent in the first quarter.”

The report showed construction and utilities were the best performing non-oil sectors and agriculture and retail were the weakest.

It said the rapid growth in the oil sector is due mainly to higher crude revenues between the second quarter of 2009 and the second quarter of this year.

“This is largely because of higher oil prices… Arab Light averaged around $77.4 per barrel in the second quarter of this year, compared with nearly $59.1 per barrel in the same period of last year,” Jadwa said.

“Production was also up slightly. Growth in the oil sector was actually below our estimate of the increase in oil revenues over the period. This runs contrary to the trend in recent years when oil GDP was notably higher than the level justified by changes in oil prices and production, and could reflect a slowdown in other oil-related activities that may be captured in the figures.”

A breakdown showed year-on-year growth in the non-oil private sector slipped from 6.7 per cent in the first quarter to 6.2 per cent in the second quarter.

 In quarter-on-quarter terms, the non-oil economy decline by 2.1 percent in the second quarter, the report showed.

“t is not a surprise that construction and utilities (electricity, gas and water) were the best performing sectors in year-on-year terms, as these are benefitting from significant and sustained government spending….manufacturing also posted strong growth, which was driven by ‘other manufacturing’  (manufacturing excluding oil refining),” the study said.

“This is likely to reflect the start of production at some petrochemical facilities and a revival in output in other industries, such as cement, that benefit from high construction spending….as with the retail sector, there is a sharp fall in public sector growth in year-on-year and month-on-month terms in the second quarter.”

The report projected a slowdown in the non-oil private sector in the third quarter when compared to the second quarter because of the scaling back of business activity during the summer, Ramadan and Eid al-Fitr.

In year-on-year terms, it is probable that non-oil private sector growth will remain around current levels, it added.

“The pickup in bank lending when compared to a year ago will support growth. Conversely, it is likely that growth will be coming from a higher base than in the second quarter, as we think that the second quarter of last year was probably the low-point for the economy in the recent downturn; this will dampen the outturn.”

The report expected overall growth in the Saudi economy, the largest in the Arab world, to slow in the third quarter due to much lower growth in oil revenues.

“We anticipate that non-oil private sector growth will strengthen in the fourth quarter, as bank lending continues to rise and business and consumer confidence improves. Small growth in oil revenues is expected to reduce the pace of overall economic growth,” it said.

“With oil prices (WTI) expected to average $78 per barrel this year, we expect total nominal economic growth in 2010 of 15.7 percent. We maintain our forecast for real GDP growth this year of 3.9 percent.”

In 2009, Saudi Arabia’s economy grew by only around 0.6 per cent in real terms and plunged by 21.1 per cent in current prices.