* Growth forecast raised from 4.1 pct seen in April
* Expects strong private sector growth
* Labour reforms take toll on some firms in Q2
* Cuts fiscal surplus forecast, spending should slow
* Equity price rises, mortgage lending need monitoring
By Martin Dokoupil
DUBAI, July 21 (Reuters) - Saudi Arabia’s economy is likely to grow 4.6 percent this year, more than previously estimated, helped by a robust performance of the private sector, the International Monetary Fund said on Monday.
“Private sector growth is expected to remain strong, and oil production is expected to be little changed from 2013,” the IMF said after concluding its annual consultations with the country.
“Large scale infrastructure projects and spending on housing will continue to support non-oil sector growth,” it said. The oil sector’s output accounts for almost half of the $748 billion Saudi economy.
In an April update of its regional projections, the IMF had forecast gross domestic product growth in the OPEC member at 4.1 percent for 2014, when adjusted for inflation. The kingdom’s economy expanded by 4.0 percent in 2013.
Labour market reforms took their toll on Saudi GDP growth in the first quarter when the annual rate slowed to 4.7 percent, data showed this month. This followed growth of 5.0 percent in the October-December quarter of 2013, the fastest pace since the third quarter of 2012.
Around a million foreign workers left Saudi Arabia last year after a crackdown on visa irregularities as a part of the labour reforms aimed at putting more Saudi nationals into jobs.
Company results this month showed how these changes have hit the corporate sector.
For example, major Saudi construction firm Abdullah Abdul Mohsin Al Khodari Sons Co reported a 68.8 percent slump in second-quarter net profit on Sunday, falling well below analysts’ forecasts as manpower costs surged.
The IMF said inflation in the country should remain subdued this year despite higher growth expectations. It forecast inflation at 2.9 percent, slightly lower than 3.0 percent it estimated in April.
The Fund expects the country’s fiscal surplus to more than halve to 2.5 percent of GDP in 2014, the smallest since 2010, from 5.8 percent last year. But it also said that Riyadh’s fiscal position was still strong.
In April, the IMF had forecast Saudi Arabia’s 2014 fiscal surplus at 7.1 percent of GDP.
“They (IMF directors) generally saw merit in slowing, over time, the pace of government spending and increasing non-oil revenues so as to preserve fiscal buffers,” the Fund said.
The kingdom has already taken steps to rein in big increases in government spending. In the 2014 budget, Riyadh projected a modest 4.3 percent expenditure rise from the previous plan, the slowest rate in a decade.
In April, the IMF had forecast that Saudi Arabia’s public finances could shift into a deficit of 1.3 percent of GDP by 2018. The IMF did not provide details of any update on this forecast on Monday.
The Fund said the current monetary policy stance in Saudi Arabia, which pegs its riyal to the U.S. dollar, was appropriate. But it called for careful monitoring of rising equity prices and a rapid increase in mortgage lending. It also saw scope for refining liquidity management in the banking sector. (Editing by Jane Merriman)