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State spend trumps dampened private sector

State spend trumps dampened private sector

Private sectors may be wary of the regional unrest, but booming energy industries are expected to offset this, especially with aggressive state spending.

April 5, 2011 4:10 by

Saudi Arabia announced in February and March that it would spend an additional $130 billion — presumably over several years — on housing, bonuses for state employees, job creation and other projects to improve social welfare and the economy.

This is expected to help drive the state sector’s output over 5 percent higher for the third year in a row in 2011, the first time such extended growth in the sector has been seen since the early 1980s.

Taking into account increased oil output to make up for Libya’s shortfall, Saudi Arabia’s economy is expected to expand 4.5 percent this year and 4.4 percent in 2012, an acceleration from 3.8 percent growth in 2010, a Reuters poll of analysts showed in mid-March.

Saudi stocks have gained 9 percent since the Saudi king announced the latest fiscal stimulus in March.

“In terms of economic prospects, all these countries are oil exporters and their economic outlook is quite positive if you look over the medium term, particularly Qatar, Saudi Arabia as well,” said Dina Ahmad, a strategist at BNP Paribas.

“These two countries in the Gulf stand out in terms of economic growth and prospects for foreign direct investment.”

In Qatar, where government spending is set to jump by 19 percent in the fiscal year to March 2012, the economy is expected to power ahead by 15.8 percent this year, one of the fastest growth rates in the world, the Reuters poll found.

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