Printer Friendly

Saudi business sentiments fall amid weakening global economic recovery.

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 per cent from April's forecast of 3.1-3.3 per cent 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.

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. Seventy per cent of the businesses expect prices to go up in Q3 2011, while 25 per cent 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.

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 per cent 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.

Outlook regarding factors likely to adversely influence operations in Q3 2011 reveals a favourable business environment. Forty one per cent of the respondents do not anticipate any negative factors coming into play in the third quarter of 2011. Availability of skilled labour remains an important concern for 24 per cent of the firms, while 13 per cent expect that availability of finance might impact business operations in Q3 2011. Fifteen per cent of the businesses are concerned about inflationary factors in the short term.

Forty eight per cent of the firms plan to invest in business expansion compared to 53 per cent in the previous quarter.

2011 CPI Financial. All rights reserved.

Provided by an company
COPYRIGHT 2011 Al Bawaba (Middle East) Ltd.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2011 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Publication:CPI Financial
Date:Jul 13, 2011
Previous Article:NBAD issues $123.8 million samurai bond.
Next Article:Al Baraka signs $20 million agreement to finance international trade operations.

Terms of use | Privacy policy | Copyright © 2021 Farlex, Inc. | Feedback | For webmasters |