The Saudi economy is forecast to shrink by 1.2 percent in 2009, despite a stronger market for oil and expanded government investment, Riyadh-based Samba Bank said .
The recovery of oil prices to above 60 dollars a barrel and a forecast 24 percent hike in government spending is not enough to offset a sharp slowdown in private sector activity, the bank said in its mid-year report on the economy of the world’s leading oil exporter.
“Public sector investment has been vigorous in both the oil and non-oil sectors; private investment, in contrast, remains weak, hemmed in by extremely tight credit conditions and poor export prospects,” Samba said.
It forecast GDP would contract by 1.2 percent after 4.5 percent growth last year. Growth would resume in 2010 hitting 4.4 percent, the bank predicted.
It pointed to a continuing weakness in markets for petrochemicals and refined products, the country’s leading exports after oil and natural gas, with prices for polyethylene still at half the highs of mid-2008, for example.
Multi-billion-dollar refinery and petrochemical projects expected to carry economic growth have been delayed, Samba said, including the Jubail refinery planned by Saudi state oil giant Aramco and France’s Total, and the expansion of the Ras Tanura petrochemicals complex of Aramco and Dow Chemical of the United States.
“Banks’ perception of deteriorating export prospects appear to have played a part in the squeezing of credit flow to such projects,” Samba said.
Samba also pointed to a large oversupply in the commercial property market and slow investment in the government’s heavily promoted new economic cities, including the ambitious King Abdullah Economic City north of Jeddah on the Red Sea coast.