The Composite Index for the non-hydrocarbon sector has dropped to 52, 16 points lower than the Q2 figure
All six parameters have posted a fall in the third quarter, weighed down by slowdown in global economic growth
The Composite Index for hydrocarbon sector has increased to 63, an all-time high

JEDDAH - The National Commercial Bank, in association with Dun and Bradstreet South Asia Middle East Ltd (D&B), has released the Business Optimism Index for Saudi Arabia for the third quarter of 2011.

Background to the survey

The survey for the Business Optimism Index for Q3 2011 was conducted in June 2011, amid an environment of weakness in business and economic indicators around the globe, indicating a mild slowdown in the pace of growth. While emerging and developing economies continue to post strong growth figures, expansion in economic activity in the developed countries remains weak. There has been some loss of confidence in the current economic environment due to the end of many government stimulus programs, tighter monetary policies in some countries such as China and India, impact of parts shortages on many assembly operations worldwide due to the Japanese earthquake, rising cost of energy and commodities, Europe's sovereign debt issues and the continuing political upheaval in North Africa and the Middle East. The softening in growth is expected to be temporary, with a rebound in the second half of the year. Downside risks to this growth scenario have however increased. Economic activity indicators in the US are showing larger than expected weakness. The US Federal Reserve has trimmed the growth forecast for 2011 to 2.7-2.9% from April's forecast of 3.1-3.3% growth. Europe's year-long sovereign debt issue has led to considerable volatility in financial markets and market players increasingly anticipate that the contagion will spread.

Commenting on the findings of the survey Manjeet Chhabra, General Manager, Middle East of Dun and Bradstreet South Asia Middle East Ltd:

Hydrocarbon sector

The D&B BOI survey reveals that Saudi Arabia's hydrocarbon sector optimism has surged in the third quarter of 2011. The overall BOI composite score for the sector is 63 versus 50 in Q2 2011, due to a higher BOI score for all three parameters. Respondents expect prices to rise further as demand for oil remains strong and will continue to grow. The BOI score for Level of Selling Prices is 65 in Q3 2011, compared to 53 in the previous quarter. 70% of the businesses expect prices to go up in Q3 2011, while 25% anticipate no change. The net profits expectations of the industry players have shown a marked improvement over the previous quarter, the BOI for which is recorded at 65, compared to 50 in the last quarter. The BOI for Number of Employees has increased to 55 in Q3 2011 from 45 in the second quarter of 2011.

Non-hydrocarbon sector

The BOI survey reveals 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. The BOI for Level of Selling Prices stands at 34 in Q3 2011, down from 46 in the last quarter. Saudi Arabia's annual inflation slowed to a 16 month low of 4.6% in May, mainly due to a drop in food costs. However, inflationary pressures are expected to build up in the second half of the year in response to the additional spending measures announced by the government, the weak Dollar and high raw material prices.

The slide in expectations in demand and prices has also lowered expectations for profits and inventory levels. The BOI for the net profits parameter is recorded at 57 in Q3, down from 82 in the second quarter. Respondents are less optimistic with respect to inventories compared to the second quarter; the BOI for level of stock stands at 36 in Q3 2011, down from 51 in the previous quarter. The BOI for number of employees has also dropped, declining by 12 points to 44 from 56 in the last quarter.

Factors impacting business

Outlook regarding factors likely to adversely influence operations in Q3 2011 reveals a favorable business environment. 41% 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% of the firms, while 13% expect that availability of finance might impact business operations in Q3 2011. 15% of the businesses are concerned about inflationary factors in the short term.

48% of the firms plan to invest in business expansion compared to 53% in the previous quarter.

Commenting on the findings of the survey, Dr. Said Al-Shaikh, Senior Vice President and Group Chief Economist of the National Commercial Bank, said, "

The D&B Business Optimism Index is widely recognized as a key measure of the pulse of the business community, serving as a reliable benchmark for investors, policy makers and other observers of the economy worldwide. As the latest addition to D&B's global series, the Business Optimism Index on Saudi Arabia, done in association with The National Commercial Bank, is issued on a quarterly basis. The next Business Optimism Index on Saudi Arabia will be released in October 2011.

About National Commercial Bank

The National Commercial Bank (NCB) was the first bank in Saudi Arabia, established under Royal Decree on the 26th of December 1953, and is the largest bank in terms of capital in the Arab world. The Bank's paid up capital at year-end 2007 was USD 4 billion.
The National Commercial Bank has been a pioneer in the Saudi banking industry, and was the first bank to offer mutual funds in the Kingdom. Since the beginning of the 1990s, the Bank has been one of the trailblazers in Islamic Banking, providing a wide range of innovative Islamic product and services.
The National Commercial Bank has one of the largest branch networks in Saudi Arabia, and also operates 2 international branch offices in Beirut and Bahrain, and 3 representative offices in London, Seoul, and Singapore. True to its Islamic roots, the bank has a prominent role in the area of social responsibility through a range of social programs.

About Dun and Bradstreet

Dun and Bradstreet (D&B) is the world's leading source of business information and insight, enabling companies to Decide with Confidence® for more than 169 years. D&B's global commercial database contains more than 195 million business records. Through the D&B Worldwide Network - an unrivalled alliance of D&B and leading business information providers around the world -customers gain access to the world's largest and highest quality global commercial business information database.

D&B's Economic Analysis Group produces research and analysis that enables the business and finance community to gain insight into industries, markets, and economies. D&B Research & Advisory Services assists governments, institutions and corporate in evaluating business opportunities and risks leading to strategy formulation and implementation.

For further information:
National Commercial Bank
Ghassan Hussein Badkook
Manager, Corporate Public Relations
Tel: +966-2-6463252
Email: g.badkook@alahli.com
www.alhali.com