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Saudi central bank cuts expectations on 2011 growth

Saudi central bank governor sees GDP growth at around 5 percent in 2012, while forecasting that the inflation rate will stabilise and may even decline in future

September 28, 2011 11:34 by

Saudi Arabia’s central bank governor reined in his expectations for growth in a newspaper interview published on Wednesday, saying he is “optimistic” the economy will grow by up to 5 percent compared to a previous forecast of around 6 percent.

Muhammad al-Jasser told the Asharq al-Awsat daily he also expected the world’s biggest oil exporter to grow by around 5 percent next year and that inflation would slow in the future.

Analysts polled by Reuters in June expected the Saudi economy to grow by 5.7 percent in 2011 and 4.5 percent next year. Al-Jasser had said in June he expected growth of around 6 percent.

Worried by unrest sweeping the Arab world, Saudi Arabia has pledged to spend an estimated $130 billion, or nearly 30 percent of its annual economic output, on new houses, creating jobs, unemployment benefit and other measures.

“I believe that we are in a better situation than others,” the governor was quoted as saying. “We hope that the global economy is not entering in a new downturn of fear and weakness, especially in the big financial institutions in Europe, that have a lot of links in the world.”

Jasser said in September the OPEC member was not concerned about U.S. debt and was also not looking into buying euro zone debt.

Fears of debt contagion in the euro zone and a slowdown in the United States have been shaking global markets over recent months.

On Wednesday, European stock index futures fell and the euro dipped as investors sought more signs that European leaders were tackling a debt crisis.

Jasser said: “The situation in Europe with regards to government debt and especially the European banks’ exposure to these large debts have put them into a difficult situation, and their ability to service their debt has become difficult.”

Inflation in Saudi Arabia has been floating below 5 percent for most of 2011. In August, annual inflation eased to 4.8 percent and monthly price growth halved to 0.5 percent as a rise in housing and transport cost subsided.

“I believe… the inflation rate will start to stabilise and then decline in the future,” he told the Arabic paper.

The central bank previously said it expects inflationary pressures to continue at a moderate pace in the third-quarter of this year. (Reporting by Martina Fuchs; Editing by Angus McDowall and Toby Chopra)

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