“In 2010, we expect the Saudi economy to grow by 3.8 per cent, well ahead of all the other countries in EMEA except Turkey and Qatar,” said the report on the kingdom issued on Tuesday, which also forecast oil price to peak $175 a barrel in 2016.

With the current account and fiscal balances expected to remain in surplus (the current account comprised 5.7 per cent of GDP in 2009), “we expect (the kingdom) to continue to build up its foreign asset stock with domestic debt levels inching down further,” the report said and noted that Saudi Arabia has no external sovereign debt. But the bank said private sector growth should be boosted by the government’s continued diversification efforts and structural reforms.

It said Saudi Arabia has reduced its debt level from over 100 per cent of GDP at the end of the nineties to around 13.5 per cent. It noted that growth potential of the Saudi consumer sector is underpinned by solid economic fundamentals, an under-leveraged consumer, attractive demographics, and a fragmented and unsaturated modern retail market. “The consumer population is young, urbanised (around 60 per cent in the five largest cities), fast-growing and shopping-focused due to the key role shopping plays as one of the main forms of entertainment in the kingdom,” the report said.

Retail spending (adjusted for GDP per capita) is lower than that in other fast-growing markets such as Brazil, India and Turkey, and retail real estate supply remains well below other major GCC economies. Additionally, small traditional retailers continue to have a dominant presence, which creates an opportunity for consolidation.  Besides, the kingdom’s property market is the biggest across the Gulf Cooperation Council. According to the ministry of economy and planning, the kingdom requires 1 million residential units in the next 5 years, while on the supply side the industry is characterised by the dominance of small developers capable of delivering at most 5,000 units a year. Even the non-residential stock is old and falls short of demand.

“We expect non-oil GDP growth — the appropriate measure of job-creating economic activity in oil exporting countries — to grow by 2.0 per cent in 2009 and 4.2 per cent in 2010 supported by an expansionary fiscal stance as the government continues with key investment projects and diversification efforts,” said the report.