Manufacturing sector in Saudi Arabia was the fastest growing private sector in the first half, rising by 22.5 percent, driven by a 38 percent increase in petroleum refining, Jadwa Investment report said. Refining accounts for around 20 percent of the manufacturing sector and its value is heavily influenced by the oil sector. Non-refining manufacturing expanded by 14.8 percent, due largely to higher prices for petrochemicals, plastics and related products and greater output of construction materials. Construction was the next fastest growing private sector, at 9.2 percent, though growth slowed from the first to the second quarter, an indication that the house-building program announced in March did not spur an immediate jump in activity, the report said. The dynamics of retail sector growth were puzzling. The year-on-year growth rate barely improved in the second quarter despite cash withdrawals from ATMs and point of sales transactions jumping to record highs. The weakness in the finance sector was also notable. This sector is broken into ownership of dwellings and "other". The "other" part, which contains financial services, insurance and other business services, was up by just 1.8 percent, the same growth rate as for the struggling agriculture sector. New data showed that economic growth in the first half of the year was strong, at 26.1 percent year-on-year in nominal terms. Nominal data is not adjusted for price movements, so higher oil prices meant that oil was by far the fastest growing sector, at 39.5 percent. Non-oil growth was 12.9 percent, with the non-oil private sector growing by 8.4 percent. There was little change in non-oil private sector growth between the first and second quarters despite the announcement of SR500 billion of new government spending and the easing of regional unrest. The growth in the oil sector was largely the result of higher prices. We estimate that the price earned by the Kingdom for its average barrel of export crude rose to $104.6 per barrel in the first half of this year from $76.4 per barrel in the corresponding period of 2010, an increase of 37 percent. Oil production was up by 10 percent over the same period. Non-oil private sector growth, however, only rose from 8.2 percent in the first quarter, when the stock market plunged and regional uncertainty was at its peak, to 8.5 percent in the second quarter. Indeed, the only sector that saw a notable pick-up in growth in the second quarter was utilities, which was probably the least affected by the events elsewhere in the economy. The non-oil private sector actually contracted by 5.2 percent in the second quarter, though the data is distorted by seasonal factors. For each of the three years of data available, the non-oil private sector has shrunk in the second quarter, though the fall this year was almost the same as that in 2010 despite the government stimulus. The drop in the retail sector, of 14.5 percent, is the largest in any of the three years for which data is available, Jadwa said.
