Our new Saudi Arabian whole-economy activity proxy suggests that GDP grew by around 7% y/y in the first quarter of this year, maintaining the record pace of growth in 2011. However, the combination of weaker government spending growth, the deteriorating external environment and policy responses to signs of domestic overheating means that the non-oil sector will probably slow over the course of 2012. With the hydrocarbon sector also slowing, we think that overall GDP will grow by around 3.5% this year, down from 6.8% in 2011.
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