GDP to grow 3.7% in 2010 and by around 4% in 2011 JEDDAH: Inflation in Saudi has continued its downward trend, reaching 5.5 percent year-on-year by the end of the second quarter of 2010, lower than the 27-year peak of 11.1 percent in July 2008, but still significantly higher than the historical inflation rate of 1-2 percent, the National Commercial Bank (NCB) said in its study. Entitled “the Kingdom Marching to Recovery”, NCB forecast in the report that high rents have been the dominant source of inflationary pressures, registering an annual increase of 9.4 percent. “We expect inflation to average around 5.2 percent this year after recording 5.1 percent in 2009.... going forward, Saudi Arabia will see average inflation maintains the five percent level in 2011 as well, reflecting our belief that the main price gauge will not ease substantially due to the rent component that will require medium to long-term strategic solutions,” it said. On investment, NCB forecast FDI inflows would maintain elevated levels well into 2010 after reaching around $35.5 billion in 2009. “We believe that FDI is driving overall investment spending in the Kingdom higher, as the share of FDI in gross fixed capital formation (GFCF) increased significantly, from an average of one per cent in the period 1990-2000 to a remarkable 43.5 percent in 2009,” it said. The growth in FDI inflows were due to, among others, the extensive number and diversity of projects currently underway, amounting to around $695 billion and the substantial surge in investment expenditure by both the private and public sectors, leaping from 17 percent of GDP in 2006 to nearly 25 percent of GDP in 2009, positive contribution from private consumption as the population grows, rising GDP per capita, and lower barriers to entry across various sectors. NCB also forecast GDP growth of 3.7 percent in 2010 and around four percent in 2011 compared with only 0.6 percent in 2009, its lowest growth level since 2002. It noted that the Kingdom's economy skirted “technical recession”, saying that in 2009, real GDP growth decelerated to around 0.6 percent, mainly due to the negative contribution from the oil sector, stemming from a lower production. “However, the economic growth outlook for 2010 has improved immensely with the global economy settling down and growing again,” NCB said. It said the Kingdom's economy gains support higher oil prices, improvement in global demand for oil and strong foreign capital inflows and resumption of private-sector credit continue to support the non-oil sector. “We are now forecasting real GDP growth to rise by around 3.7 percent in 2010 and four percent in 2011, as the expansion in the oil sector is projected to complement the non-oil sector continued positive contribution to overall growth.... our assumption centers on a sustained recovery in global demand and higher oil production level during the forecast period,” the study said. In another report, NCB said there has been a dramatic increase in contracts awarded in the Saudi construction sector in the Q2 of this year. The NCB Construction Contracts Index reached 80.36 points by the end of the period and with contract awards expected to continue to rise through the third quarter of 2010. The Q2 2010 witnessed a consistent increase in the value of awarded contracts. The total awarded contracts during Q2 2010 grew to more than SR24.2 billion compared to SR8.8 billion in Q1 2010 increasing by 175 percent.
