01/06/2009
MUSCAT, May 31 (Reuters) - Saudi Arabia's non-oil sector is likely to grow this year as expansion in finance and services help offset a decline in demand for petrochemicals, the Gulf state's finance minister said on Saturday.
Rental inflation in the world's largest oil exporter was also starting to ease as the supply of real estate increases, Ibrahim al-Assaf told Reuters in an interview.
Declining to forecast overall gross domestic product (GDP) growth, al-Assaf said an International Monetary Fund projection for a 0.9 percent contraction in 2009 "underestimates non-oil GDP on the government side and has a more pessimistic view of the oil market".
"We believe we will have a reasonable growth rate in non-oil GDP," al-Assaf said. The non-oil sector, which al-Assaf said accounts for about 70 percent of Saudi Arabia's gross domestic product (GDP), grew 6.1 percent in real terms last year.
"Probably it is going to be less than last year and one of the reasons for this is the impact of the global economy on exportable sectors production, particularly petrochemicals," he said.
Saudi Basic Industries Corp, the Arab world's largest company, swung to a worse-than-expected loss in the first quarter on depressed demand for petrochemicals, lower prices and because it wrote down goodwill on a U.S. acquisition.
"Petrochemicals are influenced by the international developments. But it is counted as part of the non-oil GDP and that's why it will influence the non-oil GDP," al-Assaf said.
Still, financial, construction and services sectors would "do fine" this year, helping boost over all non-oil growth, while growth would pick up in 2010, the minister said.
EASING RENTS
Oil prices have recovered to more than $60 a barrel this month -- a level that, if sustained, would enable most states in the oil-exporting Gulf to more or less balance their budgets and keep public spending high to shore up their economies.
Saudi Arabia approved more than double the value of development projects in the first quarter compared with last year, Assaf said earlier this month.
Still, the Organization of the Petroleum Exporting Countries has pledged to cut output by 4.2 million barrels per day, around a fifth of global supply, from last September to shore up prices that fell to the low $30 per barrel range earlier this year.
As commodity prices slumped, inflation rates have declined rapidly across the Gulf.
Saudi inflation rate fell for a sixth month running to a 19-month low of 5.21 percent in April, with official data showing food price rises continued to decline while pressures from rents remained steep.
"We are not concerned about deflation, we are not even close to thinking about it. We don't have that problem," al-Assaf said.
Rental price inflation was starting to ease, he added. Rents jumped 18.8 percent in April compared with 20 percent in March.
"I think the pressure on rental inflation is easing because of more rental properties and less growth in people coming to the country due mainly to the global crisis," he said.
The Saudi population of 25 million people includes about 7 million foreigners.
