The growth in the Saudi non-oil sector will ease due to high base effects in 2012, the National Commercial Bank said in its “Saudi Economic Perspectives 2012-2013” report . Real non-oil GDP in 2011 grew by around 7.8 percent, which is higher than the 10-year average of 4.4 percent, largely driven by the stellar performance of the non-oil private sector. The private sector maintained its significant contribution to real GDP at 49 percent, growing by 8.3 percent, which illustrates the vibrant role that private enterprises are assuming in the Saudi economy. The main drivers of private sector growth were manufacturing, construction, and transportation and telecommunication sectors, which posted 15 percent, 11.6 percent and 10.1 percent annual growth, respectively. On the expenditure side, investment and consumption spending underpinned broader economic activities, rising by 18.5 percent and 10.7 percent from 3.7 percent and 8.1 percent, respectively. The sharp increase in investment was supported by the royal decrees, enhanced business confidence and the improved financing environment. Evidently, the growth in manufacturing and construction benefited from the pickup in credit, receiving SR21.6 billion and SR14.2 billion, respectively, in incremental loans and advances from banks in 2011, which represents an annual increase of 24 percent and 25.4 percent relative to -1.1 percent and 5.1 percent, respectively, in 2010. Moreover, the boost to business confidence levels led to an unprecedented increase in the value of awarded construction contracts that reached a record SR270 billion last year. Meanwhile, the growth in government consumption by 13.6 percent to SR427 billion coupled by 8.9 percent gain in private consumption stimulated the domestic economic cycle. The report further said virtuous cycle will likely remain in place especially that the royal decrees will continue to have expenditure repercussions during the medium-term horizon through the permanent fiscal measures and the capital expenditure initiatives estimated at around SR280 billion. The unemployment assistance program known as “Hafiz” that started in December will also support private consumption, with 1 million Saudis from around 2 million potential beneficiaries, currently, receiving around SR2 billion each month. The high marginal propensity to consume of Hafiz recipients will imply that most of the money received will be consumed. However, due to high base effects emanating from the significant growth in most of the sectors last year, “we expect non-oil sector growth to return to the norm, averaging 4.7 percent in 2012, with the non-oil private sector expanding by 4.5 percent.” Manufacturing and construction will be the key beneficiaries this year, growing at 7 percent and 6 percent, respectively, the report noted. Even though the projections for the two sectors fall short of last year's record growth rates, they will remain above the 2001-2010 averages supported by buoyant activity in the projects' market and strong business confidence. During 2011, the value of awarded construction contracts crossed SR270 billion, rising by 155 percent Y/Y to outperform the previous high of SR207 registered in 2009. Interestingly, almost 69 percent of this value was awarded during 2H 2011, propelled by a number of mega projects. The awarded contracts in the manufacturing sector reached SR31.8 billion in 2011, the third largest share across all sectors, surpassed only by the transportation and power sectors. __
