Special Report: How the credit crunch boosted Riyadh's influence

The news that Riyadh is prepared to run a budget deficit in 2009 in order to deliver its strategically important infrastructure investment programme has gone a long way towards calming the fears of many in the region following the recent falls in oil prices.

Business and political leaders across the region are pinning their hopes on the massive Saudi economy being able to carry the Middle East through a difficult 2009.

And Riyadh’s commitment to continue with its spending plans will compensate for the scaling back of private sector projects as companies struggle to find finance.

But it will not be easy, even for the kingdom. Even though its giant economy is less integrated into the wider global economy than many of its neighbours, it is certainly not cut off from it. Saudi Arabia too will suffer a sharp slowdown in growth next year.

In December, ratings agency Fitch downgraded its growth forecast for the kingdom in 2008 to 4.9 per cent, from 6 per cent in July. The downward revisions are greater still for the year ahead, with Fitch halving its 2009 growth forecast to about 2.6 per cent.

But despite this, the Saudi economy is in good shape and the medium- and long-term prognosis is good. Energy analysts are expecting oil prices to spike again in the second half of 2009, and by 2010, Saudi Arabia can look forward to a return to healthy growth.

Index of all stories in this special report

• Governance: Riyadh takes centre stage internationally

• Economy: Slowdown forces Riyadh to prioritise projects

• Investment: Liberalising the Saudi economy

• Energy: Saudi Aramco drives down costs

• Banking: Lending restrictions threaten growth

• Wastewater: Water shortages prompt reuse programme

• Mining: Propping up the third pillar

• Airports: Foreign operators pilot reform

• Real Estate: King Abdullah Financial District - Building a financial hub for the Gulf

• Comment: Projects need Riyadh’s support