Saudi economy expected to grow 3.5% this year

RIYADH — Saudi Arabia’s economy is seen to grow 3.5 per cent this year, central bank Governor Muhammad Al Jasser said, as the Arab world’s largest economy gains momentum from government spending and higher oil prices.

By (Bloomberg)

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Published: Mon 27 Sep 2010, 11:52 PM

Last updated: Mon 6 Apr 2015, 11:54 AM

“The role of the state’s fiscal policy during this year and last year has been large,” Al Jasser said in a Press conference in Riyadh on Sunday. “Its influence on the private sector and other sectors will be good.”

Saudi Arabia has spurred economic growth with a $400 billion, five-year investment package announced in late 2008. Growth slowed to 0.6 per cent in 2009 as the kingdom’s average daily oil output fell 11 per cent to 8.2 million barrels a day, according to the central bank’s annual report.

“Government expenditure has been used in a way to support aggregate demand when the private sector took a hit,” Jarmo Kotilaine, chief economist at Jeddah-based NCB Capital, said in a phone interview on Sunday. “Last year, we had a sharp decrease in oil prices, and volumes plummeted. That has reversed this year.”

Oil prices fell as low as $33.98 a barrel in February 2009 from a peak of almost $147 a barrel in 2008. Crude for November delivery advanced on Saturday $1.31 to $76.49 a barrel on the New York Mercantile Exchange, the highest settlement since September 13.

Budget surplus

Saudi Arabia may report a SR40 billion ($10.7 billion) budget surplus this year, compared with a budget deficit of SR70 billion last year, according to Al Rajhi Capital.

The Saudi “economy has gained traction,” the Riyadh-based unit of Al Rajhi Bank said in its September economic report received on Saturday by e-mail. “Non-oil export growth has been robust.” The non-oil economy will increase 4.4 per cent this year, according to Al Rajhi.

“On the back of rising crude production, we expect the oil sector to grow at 2.5 per cent this year against 6.7 per cent contraction last year,” the company said in the report.

Saudi Arabia, holder of the world’s largest oil reserves produced 8.29 million barrels of oil in August, according to Bloomberg data.

Inflation

Saudi Arabia’s inflationary pressures are “worrying” following increases in global food prices, though it was “premature” to make conclusions on consumer prices this year, Al Jasser said.

Saudi inflation may “moderate” to 5.5 per cent by the end of the year, according to the report on Saturday by Al Rajhi Capital. Inflation accelerated for a seventh month to reach 6.1 per cent in August.

The kingdom has no plans to change its interest rate policy as liquidity levels are adequate, Al Jasser said. The central bank last year cut the repurchase rate to two per cent, the lowest since 2004, and the reverse repurchase rate to 0.25 per cent.

“Now, the system has ample liquidity,” Al Jasser said. “Since there are no pressures on the system in terms of liquidity, then there has not been any change recently.” —



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