JEDDAH: Saudi Arabia's economy is forecast to grow five percent this year from an earlier prediction of 3.9 percent, as a result of the recent economic stimulus measures launched by King Abdullah, Custodian of the Two Holy Mosques. The planned spending of a further $93 billion will boost the country's real GDP performance in 2011, Business Monitor International reported. In a new forecast of the Kingdom's economy, BMI analysts said "the increase in public spending has led us to revise our forecasts for Saudi Arabia's fiscal position, forecasting a drop into deficit of one percent." BMI's report said Saudi Arabia's non-oil sector would play an increasingly vital role for the economy, as the government's initiative to diversify the economy away from the hydrocarbon sector would bolster private consumption. It also forecast a resurgence in the country's banking sector with asset growth forecast at about eight percent in 2011, compared to a modest 2.5 percent last year. Saudi Arabia's central bank governor said the economy could grow around six percent this year rather than the 4.3 percent currently estimated. The Kingdom has pledged to spend an estimated $130 billion, or around 30 percent of its annual economic output, on new houses, creating jobs, unemployment benefit and other measures. The International Monetary Fund (IMF) forecast the biggest Arab economy will expand by 7.5 percent in 2011, while analysts polled by Reuters in March expect it to grow 4.5 percent. Saudi Arabia relies on hydrocarbons for over 80 percent of budget revenue, and robust oil prices this year have been another spur to growth. World oil prices fell Friday as OPEC held steady its forecast for world oil demand growth this year, but warned that rising prices could dampen global consumption. New York's main contract, light sweet crude for delivery in July, dropped $1.05 to $100.88 a barrel. Brent North Sea crude for July retreated 50 cents to $119.07. Saudi inflation reached 4.8 percent year-on-year in April. John Burbank of Passport Capital recently noted that "we want exposure to the Saudi economy because there's going to be a lot of growth and higher returns on capital, and that's something that's likely to play out over a number of years." As the Kingdom pursues a massive infrastructure program, Burbank sees the country opening to foreign investors in much the same way that other emerging markets such as India did over the past decade. Burbank forecast that more foreigners will start to invest in Saudi Arabia. If more capital flows into the country, valuations of Saudi equities should rise, Burbank said. Moreover, Burbank does not see any major risk of oil prices collapsing. He expects that most of the Saudi wealth will be re-invested back into the local economy.
