Bank Audi presents Saudi Economic Report of August 2011.

Buoyant economic performance in the Kingdom this year: With KSA enjoying favorable socio-economic indicators, it was able to weather well the contagious spillover effects of the regional turmoil. The economy is actually undergoing a strong performance on the background of buoyant oil sector output on one hand and large spending packages on the other hand. The change in IMF forecast for 2011 real GDP growth from 4.5% pre-turmoil to 6.5% post-turmoil is a clear reflection of the favorable spillovers on the Kingdom's economy.

Strong growth in the oil sector driven by higher production and prices: Driven by high oil prices and enhanced oil production, implemented to compensate for the supply interruptions in Libya, Saudi Arabia's oil sector is strengthening further in 2011, after having recovered in 2010. According to the IMF, the oil sector growth rate is projected at 13.3% this year, significantly up from 2.3% last year. The Kingdom is believed to have boosted output by 0.7 million barrels a day to 9.3 million barrels. The annual six-month rise in oil prices by 43% year-on-year is also undoubtedly having its positive effects on the Saudi economy.

Opportunities outpace challenges at the horizon: Even if oil prices were to decline again, significant savings generated in recent years will allow the government to play an important role in financing new projects, with a long-term strategy of reducing crude oil dependence, increasingly using energy resources for energyintensive industries. In parallel, following a significant improvement in the business environment over the past few years as outlined by an improvement in its world rank in the IFC "Doing business" report by 27 ranks since 2006, the outlook for the private economy is favorable in the Kingdom as diversification initiatives should increasingly bolster private consumption and gross fixed capital formation at large.

The article above has been published as a part of Bank Audi`s Saudi Economic Report, August 2011. It can be accessed via Internet at the following web address : http://www.banqueaudi.com