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28 March 2024

Saudi GDP slows down in Q2

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By Staff

Saudi Arabia’s real GDP swelled by around 5.5 per cent in the second quarter of 2012 and growth was fuelled by the private sector, mainly construction and communication, according to a key Saudi investment firm.

While growth was higher than in the second quarter of 2011, it was lower than in the first quarter of 2012, when GDP expanded by 5.9 per cent, the Riyadh-based Jadwa Investment said in a study sent to Emirates 24/7.

It showed the non-oil private sector registered the highest year-on-year growth in the second quarter supported by a robust expansion in the construction and transport and communication sectors as well as strong domestic demand.

At 5.5 percent, year-on-year growth in the second quarter was down from 5.9 percent in the first quarter of 2012, the report said.

“In fact, the second quarter real GDP growth registered the slowest growth rate since such data was published in 2010,” it said.

“The decline in the growth rate is mostly due to base-effect as the strong growth in the second quarter of last year was affected by short-term government stimulus. Despite such slower growth, five out of the ten sectors registered an

improvement in the second quarter compared to that in the first quarter.”

At 9.3 percent, growth in the construction sector was the fastest of the ten sectors, Jadwa said, adding that the upsurge was heavily influenced by government capital spending as well as huge activity in building infrastructure, commercial and increasingly residential projects.

“The large government spending allocated to boosting the provision of housing

will keep construction one of the fastest growing sectors for the next few years. We, nonetheless, expect the sector to register a moderate slowdown in the third quarter following a seasonal trend,” it said.

Transport and communication also registered more than nine percent growth, which was expected given the strong link between the construction sector and the transport sector, the report said.

“We believe the strong growth in the transport sector is driven by the need to move a high volume of goods around the Kingdom (both imports and construction materials) and the ongoing investment in rail projects.”

The report showed growth of six per cent in the hydrocarbon sector was significantly higher than it was a year ago but slightly lower than the first quarter.

It said this was heavily influenced by a year-on-year increase of nine per cent in oil production in the second quarter of 2012.

 “While oil production is the central driver of the performance of the hydrocarbon sector, the divergence between the growth in oil production and the oil sector is surprising not only in this quarterly data release but also in previous quarters.”

The report expected year-on-year economic growth to ease further in the third quarter because of lower oil output growth and the seasonal factors particularly on the construction and transport sectors.

 Furthermore, the intensification of problems in the Eurozone in the third quarter and apparent slowing of the global economy will dent output by Saudi Arabia.

“Nonetheless, we maintain our view that high government spending will continue to support the economy,” Jadwa said.

“While local fundamentals are solid, with considerable uncertainty over the path of the global economy we maintain our forecast for total real GDP growth for 2012 at 5.2 percent.”