Saudi Arabia posted strong economic growth in the first half at 26.1 per cent year-on-year in nominal terms thanks to a surge in oil prices, according to a new report by Saudi bank Jadwa Investment.

Oil was by far the fastest growing sector in the Kingdom at 39.5 per cent. However, there was little change in non-oil private sector growth between first and second quarters despite the announcement of SR500 billion ($133.3 billion) of new government spending and the easing of regional unrest, Jadwa said in its report.

The non-oil growth was 12.9 per cent, with the non-oil private sector growing by 8.4 percent, it added.

On the GDP growth, Jadwa said the rise was largely due to higher crude oil prices.

'We estimate that the price earned by the Kingdom for its average barrel of export crude rose to $104.6 per barrel in the first half from $76.4 per barrel in the corresponding period of 2010, up 37 per cent.'

Oil production was up by 10 per cent over the same period, Jadwa said in the report.
 
'While this equates to higher growth than that in the official data, our oil price estimates are complicated by the unusually large divergence that has opened between the key oil price benchmarks of Brent and WTI.'

According to Jadwa, the non-oil private sector actually contracted by 5.2 per cent in the second quarter, though the data is distorted by seasonal factors.

For each of the three years, the non-oil private sector has shrunk in the second quarter, though the fall this year was almost the same as that in 2010 despite the government stimulus, it added.

Non-oil growth was driven by the government sector. Non-oil public sector growth was more than double the rate of non-oil private sector growth and rose significantly in the second quarter.

This is due to the greater government spending unleashed by new spending packages in February and March bolstering an already high increase in budgeted spending, said the report.

The government services component of GDP was up by 27 per cent year-on-year in the second quarter and was 49 percent above the level in the same quarter of 2009.

According to Jadwa, the non-oil growth was driven by the government sector.

Non-oil public sector growth was more than double the rate of non-oil private sector growth and rose significantly in the second quarter.

This is due to the greater government spending unleashed by new spending packages in February and March bolstering an already high increase in budgeted spending.

The government services component of GDP was up by 27 per cent year-on-year in the second quarter and was 49 per cent above the level in the same quarter of 2009.

Manufacturing was the fastest growing private sector in the first half, rising by 22.5 per cent, driven by a 38 per cent increase in petroleum refining.

Refining accounts for around 20 per cent of the manufacturing sector and its value is heavily influenced by the oil sector.

Non-refining manufacturing expanded by 14.8 per cent, due largely to higher prices for petrochemicals, plastics and related products and greater output of construction materials.

Construction was the next fastest growing private sector, at 9.2 percent, though growth slowed from the first to the second quarter, an indication that the house-building program announced in March did not spur an immediate jump in activity.

However, the dynamics of retail sector growth were puzzling, Jadwa said in its report.

The year-on-year growth rate barely improved in the second quarter despite cash withdrawals from ATMs and point of sales transactions jumping to record highs, it added.-TradeArabia News Service