Following strong growth in 2010, the Saudi economy is expected to strengthen further in 2011, fuelled by a robust increase in non-oil gross domestic product (GDP), according to a report by Kipco Asset Management.
This indicates a rebound in the private sector, supported by massive capital spending by the government and a rally in oil prices amid rise in global oil demand as the world economy is gradually recovering from the financial turmoil. ‘Looking ahead, the economy is poised for continued robust growth,’ the report said.
‘Oil production is increasing further to compensate for lower output in the region. As a result, fiscal balance is likely to register strong surpluses in 2011. ‘Reflecting the positive momentum, overall real GDP growth is projected by the IMF to reach 6.5 per cent in 2011 with inflation likely to rise to about 6pc as a result of both domestic and imported factors.
‘The IMF pointed out that strong near-term outlook for the Saudi economy provides an opportunity to address longer-term priorities, high among these are providing jobs and housing for the growing young population.
‘Key steps by the kingdom will be to continue progress in diversifying the economy, building on the positive business environment and continuing to improve access to credit for small and medium enterprises as well as for housing,’ the report said.
‘Saudi Arabia was able to weather the financial crisis that swept across the majority of global economies in 2008-2009, due to the large account surplus it was able to accumulate in the five years preceding the crisis, allowing the kingdom to adjust fiscal policy and provide stimulus to counteract the effects of the global recession,’ the report adds. ‘The kingdom’s experience with a crash in oil prices during the 1980s provided the Saudi Arabian Monetary Authority ample experience in dealing with recessions, which in turn proved invaluable in the latest downturn.
‘As such, the countercyclical fiscal policies adopted by the kingdom coupled with the fiscal stimulus plan provided towards infrastructure enabled Saudi to post real GDP growth of 0.6 per cent for 2009 despite a sharp drop in oil prices,’ the report said.
‘The public sector will remain the major force of the Saudi economy in 2011 and the medium-term, while a long-term effort to diversify the economy away from its dependence on crude oil exports is expected to be undertaken to enable a greater role for the private sector,’ the report added.