By Andy Sambidge
New report says kingdom will remain one of Mideast's prime areas for investment
Saudi Arabia's economy is seen expanding by 3.9 percent in 2011 and will remain one of the Middle East's prime areas for investment, a new study has said.
Business Monitor International;s Business Forecast report on the kingdom for Q2 predicts that real gross domestic product growth will be 0.9 percent stronger than last year.
"Saudi Arabia’s non-oil sector will play an increasingly vital role for the economy, as the government’s initiative to diversify the economy away from the hydrocarbon sector will bolster private consumption and gross fixed capital formation (GFCF)," the report said.
It added that GFCF growth would outperform all other expenditure components of GDP from 2011 onwards.
As part of a longer-term spending plan, the government plans to spend US $155bn in 2011 alone, investing in education and infrastructure.
But BMI analysts said that until the mortgage law is passed, it believed that "persisting weak credit growth will pose risks to the country’s growth potential".
Over the longer term, BMI sees GDP growth of 3.5 percent in real terms between 2012 and 2015.
The report added that Saudi Arabia’s investment climate remained one of our favourites in the Middle East and North Africa.
"Relative political stability, great scope for growth in capital extensive sectors like infrastructure, impressive oil reserves and production capacity are the key factors underpinning our favourable outlook," the report said.
BMI said that over the next five years, investors will
be particularly attracted by the government’s impressive spending plan, which aims to invest $1.3trn primarily in the non-oil sector.
"We continue to highlight further growth potential for Saudi Arabia, underpinned by the prospects of increasing oil production combined with the positive outlook for oil prices over 2011," BMI added.
"However, a shadow has been cast over Saudi Arabia’s political profile, with the recent social unrest in North Africa increasing risk aversion towards the entire region.
"Furthermore, uncertainty over King Adbullah’s health, and more importantly, potential succession scenarios also poses a downside risk to our growth outlook," the report said.