JEDDAH – Though the Saudi business sentiment contracted amid weak global economic recovery as shown by the Business Optimism Index for Q3 2011 prepared by the National Commercial Bank (NCB) in association with Dun and Bradstreet South Asia Middle East Ltd (D&B), on the contrary, the Kingdom’s hydrocarbon sector optimism has surged in the third quarter of 2011.
Unveiling the latest BOI Index at a press conference Tuesday, the survey noted that “despite a drop in the composite index, business optimism still remains very high.”
The drop in the value of the composite index is due to a fall in the BOI values of all six parameters. The BOI for the volume of sales parameter has registered a value of 61 compared to 78 in Q2 2011, while the BOI for the new orders parameter is down by 16 points to 62.
However, the composite index for the non-hydrocarbon sector stands at 52 in Q3 2011, 16 points lower compared to the index score in the second quarter. The drop in index value reflects that business sentiments have been impacted in the short term by the new stresses that have appeared in the global economy even though the Saudi economy remains robust, the survey showed.
Business expansion plans remain steady in Q3 compared to Q2 levels. Forty eight percent of the non-hydrocarbon companies have said that they would invest in business expansion in Q3 2011, the number has decreased marginally from 53 percent in Q2 2011.
The key drivers for the Kingdom’s strong growth are high oil prices as well as the non-oil GDP, supported by the huge government spending.
NCB said Saudi Arabia’s real GDP is expected to grow 5.3 percent in 2011 on the back of a 4.1 percent growth in 2010. The growth momentum will be partly bolstered by increasing oil production, which is being done to compensate for lower output elsewhere in the region. As a result, both fiscal and external balances are likely to register strong surpluses, which will help the country address long-term priorities such as diversification away from oil, build a favorable business environment and improve access to finance for businesses.
Among the various sectors surveyed, the transportation sector is most optimistic with respect to demand conditions and profitability in Q3 2011, recording the highest BOIs for sales, new orders and net profits.
The construction sector is most optimistic regarding price levels, while the finance, insurance & real estate sector is most optimistic about hiring in the third quarter.
Outlook regarding factors likely to adversely influence operations in Q3 2011 reveals a favorable business environment.
Forty percent of the respondents do not anticipate any negative factors coming into play in the third quarter of 2011. Availability of skilled labor remains an important concern for 24 percent of the firms, while 13 percent expect that availability of finance might impact business operations in Q3 2011.
The Saudi retail sector is set to post solid growth in the current year, tracking the overall growth in the economy, the survey said.
“Increased disposable incomes, along with higher consumer confidence should flow directly into the sector.” However, competition in the sector is intensifying and suppressing margins, it noted. – SG/QJM
Read the article in Saudi Gazette.com.sa