"Saudi Arabia’s economic recovery this year will most likely follow a gradual, steady track", says a report by Banque Saudi Fransi. The report further adds that, "Economic growth should accelerate following a stagnant and difficult year, inflation will remain at manageable but historically high levels and expansion of the private sector is set to take a turn for the better along with credit expansion at Saudi banks."

The banking sector has been reluctant in providing credit to the private and public sectors. This is expected to change in 2010 as banks look to drive revenue growth. The banking sector was not solely responsible for the contraction in non-oil private sector in 2009, the report explains. Projects were shelved by private Saudi companies as international credit disappeared and forced businesses to deleverage and restructure.

The report describes the overall reduction in productivity levels in both government and private sectors and points to the downward revision in Saudi GDP for 2007-08. It highlights the need for job creation driven by private sector activity but suggests that the trickledown effect of public funds is yet to benefit small and medium sized enterprises (SMEs). This is due to government policy of handing major oil, manufacturing and petrochemical projects to large private sector organizations with the expectation that subcontracting  will eventually support growth of SMEs.

With private sector growth falling to a 14 year low in 2009, the report is cautiously optimistic that 2010 will witness an improvement in private sector performance. The private sector is expected to expand by 3.7% while accounting for more than 47% of GDP at constant prices. Saudi economy is expected to grow by 3.9% during 2010 and recovery will be broad based and led by both private and public sectors.

Source: Report by Banque Saudi Fransi