High spending to remain engine of Kingdom's nonoil trade
20.05.12
The Kingdom's economic growth to fall to 3.1 percent in 2012, from 6.8 percent in 2011, the Jadwa report said. This sharp decline is because oil production is forecast to drop after a large rise in 2011. Growth in the nonoil economy will be 4.7 percent. Government spending will be supported by greater bank lending and high consumer spending. 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. Investment is budgeted at a record high and total spending will provide an important stimulus to the economy. "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," Jadwa said in its 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. These factors should offset the local inflationary pressures caused by the high level of consumer and government spending. Interest rates will remain exceptionally low. This will bolster the economy, though it will hinder the government should it need to tackle inflation. "We do not expect any change to the riyal's peg to the dollar," Jadwa said.
Source: Arab News
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