By Andy Sambidge
New report by Samba Bank says sharp slowdown in private sector activity to blame.
Saudi Arabia's economy is forecast to shrink by 1.2 percent in 2009, despite a stronger market for oil and expanded government investment, according to a new report by Riyadh-based Samba Bank.
The recovery of oil prices to above $60 a barrel and a forecast 24 percent hike in government spending is not enough to offset a sharp slowdown in private sector activity, the bank said in its mid-year report on the economy of the world’s leading oil exporter.
“Public sector investment has been vigorous in both the oil and non-oil sectors; private investment, in contrast, remains weak, hemmed in by extremely tight credit conditions and poor export prospects,” Samba said in a report published by Saudi Gazette on Tuesday.
It forecast GDP would contract by 1.2 percent after 4.5 percent growth last year. Growth would resume in 2010 hitting 4.4 percent, the bank added.
It pointed to a continuing weakness in markets for petrochemicals and refined products, the country’s leading exports after oil and natural gas, with prices for polyethylene still at half the highs of mid-2008, the paper added.