Saudi Arabia's economic growth is expected to fall to 3.1 percent in 2012, from 6.8 percent in 2011 as the kingdom's oil production is forecast to drop after a large rise in 2011, a report said. Growth in the non-oil economy will be 4.7 percent and government spending will be supported by greater bank lending and high consumer spending, said the study by Jadwa Investment. It said Saudi will experience another year of reasonable economic performance. Non-oil growth will be strong and inflation should ease. Lower oil production will cause total real economic growth to slow, and combined with lower oil prices, will reduce the budget and current account surpluses, it said. High government spending will remain the engine of the non-oil economy, said the report. Construction, the main beneficiary of government spending, should be the fastest growing sector. Budgeted government spending for 2012 is well below the actual level for 2011, but this latter figure was distorted by one-time payments, said the report. ‘We expect another budget surplus in 2012. The government will draw down its foreign assets, which stood at around $520 billion at the end of October, to finance its expenditure plans in the event of any shortfall in revenues,' said the report. Inflation is forecast to moderate to an annual average of 4.4 percent in 2012. Negligible external price pressures, due to lower commodity prices, a strong dollar and subdued inflation in trading partners, will underpin the decline. This will be supported by lower rental inflation, as more properties enter the market, though the amount of new supply, and therefore its impact on inflation, is not clear. There is a danger that the debt crisis in the Eurozone could spiral out of control, causing renewed global recession and a shock to the global financial sector similar to that of late 2008. The implications for the Kingdom would be serious, but not disastrous, given the government's willingness and ability to honour its spending commitments, the report said.
