RIYADH: Saudi Arabia’s economy is expected to grow by 4.1 percent in real terms in 2010 as domestic demand in the top OPEC (Organization of the Petroleum Exporting Countries) oil exporter will pick up, EFG-Hermes said in a report.
In 2011, GDP growth in real terms will accelerate to 4.5 percent with the non-oil sector improving, driven by government investment programs and private consumption, the investment bank’s Chief Economist Monica Malik said in a report.
“We expect a notable improvement in the economy in 2010 and 2011,” Malik said. “Along with net exports making a positive contribution, we also expect to see a pickup of domestic drivers, especially as government projects announced in 2009 start to be implemented,” EFG said.
Non-oil GDP would rise in real terms by 4.4 percent in 2010, up from 3 percent this year, the report said, adding that annual inflation would be around 4.4 percent on average next year.
“With only a tentative recovery in credit growth we expected limited (if any) increase in interest rates in 2010,” the Egyptian bank said.
The EFG-Hermes report comes a week after Saudi Arabia announced its record budget, projecting expenditures at SR540 billion and revenues at SR470 billion, leaving a deficit of SR70 billion.
Finance Minister Ibrahim Al-Assaf said the SR70 billion deficit in the 2010 budget was the result of the government’s plan to increase spending on welfare projects and not because of any crisis.
He said the deficit in the 2009 budget was caused by emergency spending on food subsidies, salary raises for some employees and additional defense and security expenditures.
Abdul Aziz Al-Dakhil, chairman of Al-Dakhil Capital Group, said the 2010 budget would be the Kingdom’s first deficit budget in seven years. During the past six years Saudi Arabia was having surplus budgets as a result of rising oil revenues.
The Saudi financial analyst predicted that the Kingdom would make a revenue of SR545.4 billion in 2010 while expenditures would reach SR567 billion by the end of the year with the deficit shrinking to SR21.6 billion. He said the gross domestic product in 2010 would reach SR1.66 trillion including oil revenue.
Al-Dakhil expressed his reservation on increased government spending, adding that it would increase public debts. But most analysts had welcomed the idea saying it would help the Kingdom withstand global financial crisis. He also called for Shoura Council’s participation in preparing the national budget.