Saudi Arabia's economic expansion is forecast to slow by half this year as oil production drops and growth in public spending eases.
Tomorrow's exclusives tonight:
Industry Insights e-newsletter Stay ahead of the pack and get the pick of the premium Business content straight to your inbox. Sign up
But the economy should still receive a boost from a government scheme to finance housing and further capital injections to banks.
"The budget is expansionary and the economy will be helped by more capital expenditure, so there will be housing appropriation and capital injections to lending institutions, helping to support banking sector loan growth," said Jean-Michel Saliba, an economist at Bank of America Merrill Lynch.
Saudi Arabia's GDP grew an estimated 6.8 per cent last year as oil output was raised to compensate for interruptions to production in Libya and spending growth reached an estimated 24 per cent, the highest in a decade.
The extra revenue went towards raising public sector wages, creating government jobs, injecting capital into state-owned lenders and pledging more cash for government jobs.
Growth this year is expected to fall back to 3 per cent, according to the mean estimates of four economists.
Oil production should drop as output increases in Libya and spending is estimated to fall back.
Economists also say this may be the last year for a while that Saudi Arabia runs a budget surplus. In the budget released on December 26, the ministry of finance projected revenue of 702 billion riyals (Dh687.58bn) and expenditure of 690bn riyals, yielding a budget surplus of 12bn riyals.
"Absent serious reform, continuing high growth in government spending and domestic energy consumption mean that 2012 is the last year we can confidently forecast a fiscal surplus in the foreseeable future," said Paul Gamble, the head of research at Jadwa Investment.
Fitch Ratings says there is a possibility of the kingdom running a deficit by 2015.
"Assuming 7 per cent spending growth, which would be lower than the annual average of 12.5 per cent in 2002 to 2011, modest oil output growth and an average oil price of US$100 per barrel, the country would run a deficit of 1 per cent of GDP by 2015," Fitch analysts wrote in a report last week.
This year, the economy is still expected to receive a lift, however, as programmes unveiled last year are pushed through and government expenditure is better targeted.
As much as 250bn riyals from last year's fiscal surplus is to be channelled into a dedicated account at the Saudi Arabian Monetary Agency to finance the construction of 500,000 homes.
This year's budget provides for 86bn riyals to be lent by Saudi specialised credit institutions, representing more than three times the amount lent last year.
"This has positive implications for the real estate sector, job creation in the SME sector as well as construction activity overall," Mr Saliba wrote in a research note released last week.
Joblessness and a lack of affordable housing are among the pressing challenges facing the kingdom.
As much as 40 per cent of Saudi youths are estimated to be out of work, one of the highest unemployment rates in the Arab world.
An estimated 70 per cent of existing housing projects in Riyadh, the capital, target households in the top 10 per cent income bracket, according to a report by Samba Financial Group.
twitter: Follow and share our breaking business news. Follow us
