Macroeconomic Forecast Saudi Arabia

November 2006 | Macroeconomic Forecasts

We expect real GDP growth to come in at 6.36% this year, underpinned by robust non-oil sector growth of 9.7%. This will be supported by government spending, which is expected to grow by 25% y-o-y in 2006 before declining next year. Economic expansion will decelerate in 2007 as both the oil and non-oil sector growth slows, but should pick up thereafter as oil production rises and diversification efforts start taking effect. Inflation has ticked-up somewhat: y-o-y CPI came in at 2.21% in August, up from 0.71% in 2005 and 0.3% in 2004. Nevertheless, this is still lower than neighbouring GCC states, and is likely to remain under control given extensive subsidies, a high degree of labour market flexibility and the much larger nature of the economy.

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