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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
Saudi Arabia’s real GDP (gross domestic product) growth is expected to fall by around 1 percent in 2009 as a contraction in the oil sector is projected to offset moderating growth in the non-oil sector. But real GDP growth is forecast to increase by 3 percent in 2010 based on a recovery in global demand conditions and a higher oil production level.
According to the Jeddah-based National Commercial Bank’s (NCB’s) Saudi Economic Perspectives, July 2009, Saudi Arabia’s economic performance has been exceptional in recent years. Between 2003 and 2007 real GDP growth averaged around 5 percent a year, the strongest growth in a decade, and up strongly from the 2.5 percent annual average growth during the 1990s.
In 2008, real GDP growth is estimated to have reached 4.5 percent, largely driven by strong private and public investment expenditure on the back of record oil prices and abundant liquidity. However, the NCB report said the economic growth outlook for 2009 had deteriorated sharply because of the global financial crisis and economic recession.
Although Saudi Arabia has been less affected by the financial crisis, the indirect impact on the real economy will be significant. There are three main channels through which the global crisis is affecting the nation: first, substantially lower oil prices are shrinking the main source of government revenue; second, falling global demand for oil has motivated drastic OPEC production cuts; and finally, tighter credit and investor risk aversion in international markets have led to a shortage of foreign capital, a massive decline in local asset prices and lower investment.