Saudi economy set for positive growth - Morgan Stanley

Saudi Arabia’s economy has managed to weather the global financial crisis and its near-term outlook for growth is positive, according to a Morgan Stanley report published on Thursday.

According to the report the kingdom’s real output will recover next year, fed by higher oil production levels, stronger domestic demand and an increase in banks lending.

The global financial services firm said it expects Saudi’s total output to grow by 3.6 percent in 2010 and 4.7 percent in 2011.

Mohamed Jaber, author of the report, said: "In addition to strong growth in real overall output, we also project headline inflation to continue trending downward as the tightness in the housing market is gradually eased over time.

“Based on our assumption of higher oil prices over the near term, the country's fiscal and external balances are likely to improve," he said.

Jaber said that growth in domestic demand was due to the government’s proactive monetary response to the global downturn, including easing liquidity constraints on banks and supporting domestic credit.

The report also suggests there are significant challenges facing the Saudi economy in the near future, including a need to diversify away from the oil sector.

Unemployment levels are also another problem for Saudi to address, the report said.
Currently, the unemployment rate in Saudi is 10 percent, but this could rise as up to 600,000 new graduates enter the labour market over the next five years, Jaber said.

"The issues of population growth and structural unemployment, are central to the Saudi growth story and we expect them to be of primary concern to policymakers over the medium-to-long term," Jaber said.

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