Dun & Bradstreet South Asia Middle East Ltd (D&B) in association with Qatar Financial Centre (QFC) Authority has released the D&B Business Optimism Index (BOI) for Qatar for Q3 2011.

The survey for the Business Optimism Index for Q3 2011 was conducted in June 2011, a time when most economic forecasts are predicting that the global economy is moving to a lower growth trajectory, characterized by slightly higher inflation. Emerging market economies continue to grow at a robust pace, and recovery in developed countries, although weak, also continues.

Key Highlights:

• The Composite Index for the non-hydrocarbon sector has dropped to 27 in Q3 2011, impacted by weak global cues
• All six parameters and all five economic sub-sectors post a decline
• The Composite Index for the hydrocarbon sector has increased to 22

Commenting on the survey Yousuf Al Jaida, Director - Banking & Asset Management - Strategic Development emphasised: "These findings reflect the expected quarterly retrenchment for the non-hydrocarbon sector growth in Qatar primarily due to the current global economic uncertainties. At the same time they also show the well documented continued strength of the oil and gas sector, forecasted by the IMF to grow 29.5% in 2011 on the back of a 22.7% real growth in 2010".

Al Jaida continued: "It is especially encouraging to note that 44% of companies in the financial sector plan further investments despite the still present global economic challenges, whilst 51% of non-hydrocarbon sector firms are anticipating an increase in sales in Q3 2011."

Manjeet Chhabra, General Manager - Middle East, Dun and Bradstreet South Asia Middle East Ltd. added: "Even though Qatar's economy is mostly insulated from the regional unrest and weakness in global macroeconomic indicators, business sentiments have been dented by weak global cues. The global economy is facing huge downside risks in terms of the European debt crisis, overheating in emerging economies, rising cost of commodities and disappointing employment numbers. The non-hydrocarbon sector has registered a 15 points drop to 27 in the composite score and is at a five quarter low. Despite the decline, sentiments are still positive and indicate a growing economy. Since the soft patch in the global economy is expected to be temporary, business sentiments in Qatar should also go up again. The 21 point gain in the hydrocarbon sector shows that businesses are optimistic that oil demand will remain robust and hence prices will remain steady or increase in the short to medium term."

Background to the Survey

The survey for the Business Optimism Index for Q3 2011 was conducted in June 2011, a time when most economic forecasts are predicting that the global economy is moving to a lower growth trajectory, characterized by slightly higher inflation. Emerging market economies continue to grow at a robust pace, and recovery in developed countries, although weak also continues. However, the outlook is clouded by volatility and downside risk factors.

Growth fears have been staging a comeback triggered by weaker than expected economic data in recent weeks. For instance, manufacturing data for the month of June for most countries shows that the industrial momentum is slowing down, and gains in employment are also disappointing. The global economy faces huge challenges in the form of 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, the ending of many government stimulus programs, and the continuing political upheaval in North Africa and the Middle East. The soft patch in growth is however forecasted to be temporary. Factors responsible for this slowdown are already diminishing in intensity. Japan is recovering from the collapse in economic activity following the March disaster, while crude oil prices have also retreated from their recent highs as supplies are being augmented by the drawdown of strategic reserves in the US and in Europe.

Qatar's hydrocarbon sector has been the driver of the country's spectacular growth witnessed in recent years. The IMF has forecast that Qatar's hydrocarbon sector will grow 29.5% in 2011 on the back of a 22.7% real growth in 2010. This growth will be driven by increased production of natural gas liquids, condensates and LNG, as well as huge public investments across the supply chain.

According to the Qatar Statistics Authority, the country registered a GDP of QAR 468 billion in 2010, compared to QAR 358 billion in 2009. Non-hydrocarbon sector growth in real terms is projected at 9.5% for 2011 by the IMF and will be driven by continued growth in the manufacturing sector, a pick-up in the construction sector and sustained activity in the financial and transportation sectors.

Hydrocarbon Sector

The overall BOI composite score for the hydrocarbon sector has increased to 22 versus 1 in Q2 2011, due to a higher BOI score for all three parameters. The BOI for Level of Selling Prices has increased to 18 in Q3 from 10 in Q2. 62% of the respondents in the hydrocarbon sector are predicting that prices will remain at current levels in Q3 2011, 28% of the firms expect prices to go up, while 10% expect a decline. The Net Profits expectations of the industry players has shown a significant improvement, the BOI for which is recorded at 20 in Q3 compared to -5 in the last quarter. The BOI for Number of Employees has also registered an increase; it stands at 33 in Q3 2011 compared to -10 in Q2 2011.

Non hydrocarbon Sector

The BOI survey shows that the composite index for the non-hydrocarbon sector stands at 27, which is 15 points lower compared to Q2 2011, the result of businesses being cautious due to global growth concerns in the short term. The composite BOI now stands at a five quarter low despite expectations of a 20% growth in real GDP for 2011.

Despite the dip, optimism levels are still robust. High oil prices and increased production in the natural gas sector will ensure that the budget and current account will register huge surpluses. As a result, Qatar will have plenty of fiscal room to implement ambitious expansion and development plans. Moreover, the Qatar National Development Strategy will provide a boost to the country's non-hydrocarbon sector, with spending at US$ 125 billion for the five year period 2011-16.

The BOIs for all six parameters have dropped in Q3 2011 compared to Q2 2011 levels. The BOI for the Volume of Sales parameter has decreased by 20 points to 35 in Q3 2011, while the BOI for Net profits is down by 18 points to 25. The BOI score for New Orders stands at 33, falling from the previous quarter's reading of 48. At 31, the BOI for Number of Employees has decreased by 8 points from the Q2 2011 figure.

Factors Impacting Business

Among the issues expected to adversely affect operations in the third quarter of 2011, shortage of skilled labour has been ranked by 21% of businesses as the primary influence on their business. In Q3 2011, availability of finance is the second most important issue which is likely to influence business operations. Inflationary pressure is the leading concern for 13% of the respondents. Also, 45% of the firms plan to invest in business expansion; this figure is slightly higher with respect to the Q2 2011 figure of 39%.

Business expansion plans have improved slightly over the last quarter. 45% of the firms plan to invest in business expansion; this figure is slightly higher with respect to the Q2 2011 figure of 39%.

In the oil & gas segment, shortage of skilled labor and availability of finance are leading concerns, but for 22% of the respondents there are no negative factors that could adversely impact business operations in the third quarter.

Business optimism indices are commonly used to get a better understanding of the growth expectations of the business community and its response to current developments within an economy. Issued quarterly D&B’s Business Optimism Index for Qatar is based on an extensive survey conducted amongst the Qatari business community. The next Business Optimism Index for Qatar will be released in October 2011.