Saudi economic growth will receive a substantial boost in the wake of the two massive fiscal spending packages announced by the king earlier this year, worth a combined US$129bn (30% of 2010 GDP). These will include a huge increase in social spending outlays, including wage rises and unemployment benefits, which should boost private consumption. In addition, the massive house-building programme announced by the king in March, coupled with the expected implementation of a new mortgage law, should boost the construction sector throughout the forecast period. Economic growth will also be lifted in the near term by the increase in Saudi oil production, implemented to compensate for the supply interruptions in Libya. However, it appears that Saudi Arabia has partially reversed its earlier pledge to offset the bulk of the decline in Libya's output, which in turn has led us to revise down slightly our real GDP growth forecast this year, to 6.3%. With most Libyan oil output expected to be back on stream by 2012, Saudi oil output growth will slow that year, although GDP growth will remain robust at 5.3%.
Although government recurrent spending growth will slow from 2012, as the impact of the measures announced by the king in February and March dissipates, government capital spending growth will remain robust. Similarly, private investment growth will be stimulated by projects planned or under way (including four proposed new economic cities). Combined with the coming on stream of a number of major projects, including refineries and petrochemical plants, as well as two new offshore gasfields, this investment is expected to keep economic expansion relatively strong over the second half of the forecast period, at an annual average of around 5%.
Foreigners will be an important source of investment, and inward foreign direct investment has remained relatively strong, despite the weak global climate. Overall exports will be boosted by continued expansion of the petrochemicals sector and other heavy industries. Import volume growth will be stimulated by rising demand from infrastructure projects, particularly in the early years of the forecast period, and by a reliance on imports to meet many consumer needs. As ever, oil price movements pose significant risks, as does the outside possibility of widespread domestic social unrest.
|Gross fixed investment||4.0||6.2||6.5||6.0||5.9||6.2|
|Exports of goods & services||1.7||4.9||0.5||1.6||3.7||2.6|
|Imports of goods & services||3.3||8.5||6.4||5.3||5.1||5.1|
|a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Actual.|
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