Domestic Demand Growth Heart Of Saudi Economic Boom - MENAFN

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(MENAFN - Arab News) JEDDAH, 26 July 2007 — Saudi Arabia's economic boom is all set to continue after four years of strong growth driven by rising oil revenues, which have stimulated massive project spending. However, domestic demand will take over as the main engine of growth for the period 2007-2010.

According to a report by Jadwa Investment of Riyadh, which was released on Tuesday, megaproject implementation and broad liberalization will push real non-oil private sector growth up to an average of nearly 8 percent with growth will be fastest in manufacturing, communication, finance and construction.

The Jadwa report expects inflation to peak this year at around 4 percent before falling gradually. "Inflation is inevitable in a rapidly growing economy such as Saudi Arabia. Given the rapid pace of economic expansion, this is low. When supply cannot keep up with demand, prices will rise. This has already happened. Annual inflation hit an 11-year high of 3.6 percent in January, compared to an average of just 0.7 percent in 2005. Bottlenecks associated with the rapid pace of growth will take some time to ease, but the near-term outlook for some of the other factors that have pushed up inflation is more promising," Brad Bourland, chief economist and head of research at Jadwa Investment, said.

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Bourland said "Construction will be one of the main beneficiaries of this phase of the economic boom. All of the $300 billion or so of projects that have been announced have a construction element and for infrastructure and real estate developments, particularly the planned economic cities." The Jadwa Investment report said new investment will support solid growth in electricity, gas and water. A model for private sector participation via independent water and power projects has been developed and several major projects are under way.

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