Saudi economy forecast to contract

SAUDI ARABIA: Another downbeat economic forecast - this time from Samba Group. (Getty Images)

Saudi Arabia's economy is set to contract 1.8 percent in 2009 on oil output cuts and weak non-oil growth, according to Samba Financial Group. It's the latest bank to forecast an economic slowdown for the world's top oil exporter.

Real gross domestic product (GDP) growth in the largest Arab economy would resume at 4.2 percent in 2010, Samba said in a research note on Wednesday.

The slowdown in 2009 would be mainly spurred by a 14-percent reduction in Saudi oil output this year as the OPEC member attempts to support global prices, which have slumped more than $100 a barrel since peaking last July.

"Although we expect the non-oil sector to expand by around 2 percent, this will be more than offset by the contraction in oil output," Samba said.

EFG-Hermes and Bank of America-Merrill Lynch also expect Saudi GDP to contract this year.

Samba said private sector imports were weakening, with the value of new letters of credit opened in December collapsing by 23 percent compared with November.

"By 2010 global financial deleveraging should have eased significantly ... oil prices should post a 9-percent gain."

Saudi Arabia would continue public spending to keep the economy moving, and post a fiscal deficit of 11.2 percent of GDP this year and 10 percent of GDP in 2010, Samba said.

Inflation would fall to 6.2 percent this year from 9.9 percent last year, it added. (Reuters)

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