Where is Saudi’s GDP headed?
After years of exponential growth, Saudi Arabia's GDP will likely contract by 1 percent in 2009, says Jeddah-based NCB.
July 30, 2009 8:17 by Khalil Hanware
Real non-oil GDP in 2008 grew by around 4.3 percent but is expected to moderate to 2.3 percent in 2009, reflecting spillovers from the global financial turmoil and economic slowdown.
The Saudi retail sector, growing at an annual average of around 5 percent in the last five years, is expected to slow down due to falling consumer confidence, the NCB report said. The construction sector, which has been growing rapidly in recent years, is also expected to slow down due to tight financing conditions. However, falling prices of building materials and infrastructure projects contracted by the government will continue to provide some support for construction activities in 2009. Transport and telecoms, the fastest growing sector in 2008 at around 12 percent, will likely decelerate due to slower growth in subscription, intensifying competition and a reduction in foreign operations this year. Aside from the effects of higher financing costs, activity in the manufacturing sector is expected to be less buoyant this year, given weak global demand prospects and excess production capacity. The financial sector, which grew by 3.5 percent in 2008, is also likely to slow down, given the fall in bank lending activities and the massive decline in equities and other asset classes owing to the global financial crisis.
On the expenditure side, investment and private consumption were the main sources of growth in recent years. Investment, both private and public, increased from about 25 percent of GDP in 2007 to nearly 30 percent of GDP in 2008.
However, the outlook for private investment and consumption, along with net exports as drivers of real GDP growth has weakened significantly this year. Private consumption will decline, as the fall in oil prices and weak labor market conditions erode income levels while the plunge in global and local equities triggers negative wealth effects.