Saudi Arabia's economy is expected to grow by 4.1 percent in real terms next year as domestic demand gathers momentum, the Egyptian investment bank EFG-Hermes said in its latest report. In 2011, GDP growth in real terms will accelerate to 4.5 percent with the non-oil sector improving, driven by government investment programs and private consumption, the bank's chief economist Monica Malik said in a report. “We expect a notable improvement in the economy in 2010 and 2011,” Malik said. “Along with net exports making a positive contribution, we also expect to see a pickup of domestic drivers, especially as government projects announced in 2009 start to be implemented,” EFG said. Non-oil GDP would rise in real terms by 4.4 percent in 2010, up from 3 percent this year, the report said, adding that annual inflation would be around 4.4 percent on average next year. “With only a tentative recovery in credit growth we expected limited (if any) increase in interest rates in 2010,” the Egyptian bank said. Moreover, the report said Gulf economies are on course to achieve better than-projected budget figures in 2009 as higher world crude prices offset the global credit crunch, as per a study recently released by leading investment bank, EFG Hermes. “However, oil production cuts mean three of those major oil producers, Kuwait, Saudi Arabia, and the United Arab Emirates (UAE) will still see their overall economies contract this year after expanding rapidly in recent years on the back of record oil prices, according to the analysis,” EFG Hermes said. The strengthening in oil prices will be extremely positive for the hydrocarbon-dependant GCC countries, which will see high oil revenues. EFG Hermes has revised upward its GCC macro forecasts in line with the changes in its oil-price forecasts. The majority of the headline figures, including nominal GDP and the fiscal and current account, will see an improvement. Saudi Arabia, the world's largest oil exporter, is now expected to register a small budget surplus equivalent to 0.6 percent of GDP, the bank said, after initially forecasting a deficit of 4.8 percent compared with a 33.6 percent surplus last year. The Saudi budget's break-even oil price is set at below $60 a barrel, which is the EFG-Hermes average crude price forecast for this year. Kuwait, Qatar and the UAE were already projected to register fiscal surpluses this year as their break-even oil price was set below $50. Standard and Poor's international credit rating agency on Friday also said it now expects the Saudi budget to roughly balance this year after the government projected a deficit of 8.0 percent of GDP. Crude prices tumbled from around $140 a barrel in July last year to below $40 by the end of 2008 and are currently around $70. Bahrain and Oman, which have dwindling oil resources, are still expected to register deficits as they need an oil price of $70 for their budgets to balance. Gulf governments have boosted spending to stimulate their economies amid the global financial slowdown which has triggered a shortage of credit to the private sector. Despite these expansionary fiscal policies, the International Monetary Fund believes that the Saudi economy will contract by 0.9 percent in 2009, while the Kuwait and UAE economies will shrink by 1.1 percent and 0.6 percent respectively, according to figures posted on its website. EFG-Hermes forecasts GDP contractions to be much greater in those economies, predicting the Saudi economy will shrink by 1.3 percent, Kuwait to drop by 3.8 percent and UAE by 4.0 percent. Those OPEC majors are facing a drop in oil revenues due to the lower prices and a fall in production due to a demand shortage. Saudi oil output dropped by around 15 percent in the first half of this year, while Kuwait and the UAE reduced output by around 13 percent each, EFG-Hermes said. In addition, the UAE economy in particular is suffering the impact of the real estate crash in Dubai, where rapid growth over the past few years was fueled by the overheated property sector. Gas-rich Qatar will meanwhile defy the trend to grow by 6.4 percent. Bahrain and Oman will also grow by 2.1 percent and 4.1 percent respectively, according to EFG-Hermes' study.
