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Saudi Arabia continues to outperform regional neighbours, a trend we noted in our last report. The oil price has remained at about US$70 a barrel, meaning the budget should remain in surplus even if the economy contracts in FY09.

The International Monetary Fund has forecast GDP to contract by 0.9%. That would be its first fall in 10 years, but is smaller than the expected slowdown in other Gulf Cooperation Council (GCC) countries.

Saudi Arabia's Tadawul benchmark of stocks has gained some 30% this year. The central bank governor in November 2009 warned against relaxing global stimulus packages immediately, suggesting he still sees difficult conditions for Q309. The bank has cut its reverse repurchase rate three times in 2009.

Saudi Arabia itself has a de facto stimulus package in the form of a US$400bn spending programme over five years to boost oil production capacity and complete large development projects. The kingdom has also cut its reverse repurchase rate three times this year, taking it to the lowest level since Bloomberg data began in September 2007. In contrast to its closest neighbours, Saudi Arabian property markets have been an oasis of stability. While they have been affected by global events to some degree, the damage has been limited and most analysts conclude that the long-term outlook for Saudi real estate remains extremely positive. The key driver remains demographic. With nearly 40% of the population under the age of 14, long-term demand is expected to be strong.

The kingdom is expected to build 1.5mn homes by 2015 - about 250,000 a year. In the commercial and hospitality segments, demand is also running ahead of supply particularly in Jeddah - where earlier supply issues have been overcome - and Riyadh, but also in Mecca and Medina.

Source: Fast Market Research

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