An upward revision to oil production forecast is the main reason for the jump in real GDP growth projection to 7.1 percent from 5.6 percent. Oil production has been raised to long-term highs this year to compensate for the disruption to Libyan output. Although Libyan output is resuming, Saudi oil production has remained high. In recent days Minister of Petroleum and Mineral Resources Ali Al-Naimi said production was 9.39 million barrels per day in September, compared to 8.1 million barrels per day in September 2010. The Jadwa report said Saudi production will fall in order to keep oil prices fairly stable while Libyan output is ramped up, but has revised up projection for average production this year to 9.2 million barrels per day from 8.8 million barrels per day.

The overall forecast for nonoil growth is little changed. These take account of data released so far this year and the deterioration in the global economy and are as follows:

• Monthly data points to very strong growth in consumer spending. The value of cash withdrawals from ATMs in the first eight months of this year is 24 percent higher than for the same period of last year; for point of sales transactions, the growth is 37 percent. This suggests rapid growth for the retail sector. With 4.93 million pilgrims arriving so far this year, a 60 percent increase on last year, retail, which includes wholesale, restaurants and hotels, is expected to be the fastest growing nonoil sector this year. However the impact of the strong retail sector on the rest of the economy will be relatively mild, as much consumer spending is on imported goods; the volume of consumer goods imports through the ports over the first seven months of this year is 15 percent higher than in the same period of 2010.

• Data also point to healthy growth in the construction sector. Cement sales over the first nine months of the year are 12.6 percent higher than in the same period of last year and the volume of imports of construction goods through the ports between January and July are 8 percent greater than in the first seven months of 2010. With the government committed to a substantial house-building program over the next few years, construction should remain one of the fastest growing sectors.

• Growth of the telecoms sector, which had been the fastest growing part of the economy in recent years, seems to be slowing, though it remains brisk. The number of mobile phone subscribers rose by 6.2 percent in the first half of 2011, compared to annual growth of 15 percent last year and an average of 25.6 percent over the previous two years. In contrast, the number of internet users increased by 9.7 percent in the first half, almost the same as the growth for the whole of 2010. Numbers of mobile broadband subscribers continue to surge.

• Information on manufacturing output is not produced, though port data give a guide to the volume of exports of manufactured products. It shows that exports of petrochemicals were 5 percent higher over the first seven months of this year compared to the corresponding period of 2010 and those of industrial products were 11 percent greater during the same period. The weakening of the global economy may dampen manufacturing export growth over the remainder of the year.
 

An important factor supporting the private sector has been the revival in bank lending. Year-on-year bank lending growth is running slightly ahead of our expectations and at 9.4 percent in August was the highest since April 2009. Monthly growth has averaged 1 percent so far this year, a level not seen since the final quarter of 2008. The local outlook is supportive for continued growth in bank lending, but this would be disrupted by a dramatic intensification of the banking problems in the euro zone, even though the Kingdom's banks would probably not be directly impacted, the Jadwa report said.
 

The report said over the first eight months of the year, year-on-year inflation has averaged 4.8 percent and despite the jump in consumer and government spending has been little changed, staying in a range of between 4.6 percent and 4.9 percent since February. "We still see the potential for inflation to break above 5 percent before the end of the year, but have revised down our forecast for average inflation for this year to 4.9 percent from 5.4 percent," the report added.
 

Even though government spending will jump this year, Jadwa has revised up its projection for the budget surplus to 10.5 percent of GDP (SR213 billion) from 6.4 percent of GDP. This is due to the increase in our oil production, and therefore oil revenue, forecast.

No data is available on government spending. It is nonetheless clear that spending has been high. Spending on existing projects has remained strong and around SR160 billion of expenditure announced in the Royal Decrees in February and March will take place this year.
 

The expectation of higher oil production has also pushed up Jadwa's forecast for the current account surplus, which is expected to be 27.3 percent of GDP ($147 billion) up from 24.6 percent of GDP.

Imports over the first seven months of the year are 4 percent higher than in January to July of last year. Most categories of imports are up over this period except transportation equipment. This growth is slower than anticipated and is not distorted by changes in prices, as the volume of imports through the ports over the same period is up by just over 1 percent. According to the Jadwa report, based on production and price data oil exports averaged over $20 billion per month so far this year. Nonoil exports are up by 19 percent year-on-year in the first seven months, with both petrochemicals and plastics up by over 30 percent. The bulk of this gain is due to higher prices. Exports through the ports excluding refined products and gas are just 4.5 percent greater this year.

Over the remainder of the year, Jadwa expects a slowdown in export growth owing to falling oil, petrochemical and plastics prices. The weaker global economy could also pull down export volumes, though some of this could be offset by increased petrochemicals production. The pace of import growth should pick up, the Jadwa report said.