Saudi Arabia's private sector growth is expected to recover to 3.7 percent in 2010, but will continue lingering below 4.7 percent of 2008, prior to the global financial crisis, Credit Agricole's Saudi affiliate said.

The growth in the private sector -- which hit a 14-year low of 2.5 percent in 2009 -- will be driven mainly by state spending and bank lending, Banque Saudi Fransi said in a report issued over the weekend.

Lending is expected to grow 8 percent this year, up from 2.1 percent in 2009, but still down from a 27 percent rise in 2008.

The report said the Saudi central bank is more likely to raise interest rates than lower them in 2010 in order to counter a possible surge in inflationary pressures.

The government has set spending at 540 billion riyals ($144 billion) in 2010, up 13.7 percent from projected state expenditures in 2009.

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