Saudi Arabia's economy is set to contract 0.9 percent this year on sharp crude production cuts, although the non-oil sector could cushion the decline as the government boosts spending, EFG-Hermes said. But the investment bank, which had previously seen 2.4 percent growth in the Kingdom, expects the economy to come roaring back in 2010 with growth of 4.7 percent. Economists have slashed their forecasts for real gross domestic product (GDP) in the Gulf region as major economies plunge into recession and oil prices collapse to virtually a quarter of their record level last July. EFG Hermes said in a research note that Saudi Arabia's non-oil sectors would likely expand about 4.3 percent in 2009, down from 5.2 percent in 2008. “We expect both the current account and GDP figures will deteriorate markedly in 2009 with the substantially weaker oil earning,” it said in the Jan. 11 note. “With the substantial Opec-led oil production cuts we are now forecasting real GDP will also contract in 2009 along with nominal GDP.” The Saudi economy probably grew 4.2 percent in 2008, the finance ministry said last month. The ministry is projecting the Gulf state will this year post its first deficit since 2002 as fiscal spending grows to spur an economy wounded by oil prices at less than $40 a barrel, down from $147 a barrel in July. Expansion in government spending “will be vital in supporting the non-oil sector, along with providing wider confidence in the economy”, EFG said. Saudi Arabia, the most influential member of the Opec, plans to cut oil output by up to 300,000 barrels per day (bpd) below its agreed Opec target, industry sources told Reuters on Sunday. It has already lowered supply to 8 million bpd this month, meeting its target under Opec's pact to reduce overall production by a record amount from Jan. 1. Kuwait, meanwhile, will contract by 1.2 percent, Monica Malik, chief economist at the bank said in a report. Growth will remain positive in Qatar, Bahrain and Oman and the United Arab Emirates' economy will stagnate, Malik said. Arabian Gulf economies are struggling after the price of oil tumbled 72 percent from its July high. The Gulf Co-operation Council, which groups Saudi Arabia, the UAE, Kuwait, Qatar, Oman and Bahrain, pumps almost 20 percent of the world's oil. “The countries with the greatest contribution of the oil sector should see the greatest deterioration,” Malik said. “Bahrain, Oman and Saudi Arabia will see their budgets fall into deficits, while all the regional countries except Kuwait and Qatar will realize current account deficits.” Qatar, the world's biggest exporter of liquefied natural gas, does not expect to post a budget deficit in its 2009-2010 fiscal year, Arabic-languageA-Sharq daily quoted Deputy Prime Minister Abdullah Bin Hamad Al-Attiyah on Monday. Qatar would base its upcoming budget in Apri on an oil price of $35 a barrel, he said. “Qatar is committed to infrastructure projects ... there would be no deficit in the 2009 budget,” Attiyah said. “This budget will be the largest in the history of Qatar.” Qatar's 2008-2009 budget based its oil revenue on a price of $55 a barrel. Crude prices stood at $38.66 on Monday. Qatar is less exposed to the downturn in crude prices because LNG exports are based on a variety of long-term contract prices. Qatar's economy is set to expand 9.5 percent this year, the fastest pace in the region, a Reuters poll showed last month. Attiyah added that Qatar had been “among the least affected from the financial crisis due to the strength of its economy”. On Sunday, he was quoted by the state news agency as saying that Qatar would be able to withstand a fall in oil prices to less than $30 a barrel because of expanding gas production.
