Saudi business sentiment showed some signs of relief as optimism grows amid revival of the global economy on the back of increasing demand and curtailment of uncertainty in the financial markets, the Business Optimism Index (BOI) for the fourth quarter of this year prepared by the National Commercial Bank (NCB) in association with Dun and Bradstreet South Asia Middle East Ltd - a leading financial data and business information provider - revealed on Tuesday. The BOI survey showed that in line with the pickup in global economic activity, the respondents from the non-hydrocarbon sector in Saudi Arabia have displayed a rise in expectations for sales volume and the selling prices. “These two factors are contributing to an improved outlook for profitability of Saudi businesses in the upcoming quarter,” it said. On the other hand, surging oil prices have enhanced the outlook of the hydrocarbon sector on the back of which the business optimism regarding profitability has gone up from the Q3 level of 38 to 48 in Q4. Commenting on the findings of the survey, Dr. Said Al-Shaikh, senior vice president and chief economist of NCB, said: “The fourth quarter's Business Optimism Index shows how the business sentiment in Saudi Arabia is influenced by the developments in the world economic outlook and the general atmosphere of the international markets. There are increasing signs suggesting a gradual recovery in the global economy, most evidently in the areas of finance and business services, which can be attributed to rising liquidity in the financial markets. While there are some sectors in the Saudi economy still concerned about the availability of finance and prices of raw materials, yet these concerns are relatively lower than the past quarters.” He added that “the financial results of the third quarter recently released by the Saudi companies reaffirmed, as a whole, the continued growth and stability in the Saudi economy, notwithstanding, the financial turmoil that a few businesses faced and the provisions made by Saudi banks in response. There is no doubt that the continued support provided by the Saudi Arabian Monetary Agency to the banking sector along with the expansionary fiscal policy opted by the Kingdom both have played a pivotal role in raising the level of optimism of the business community in Saudi Arabia.” Phil Strange, CFO of Dun and Bradstreet South Asia Middle East, said “the BOI study points towards further strengthening of the Saudi economy on the back of improved global economic outlook and the measures taken by the Saudi government including injecting more liquidity into the system. The business units surveyed in the report have shown an increased optimism towards their volumes of sales and selling prices which in turn is expected to drive demand levels in the economy and enhance the profitability of the business units in Q4 2009. The improved optimism for the upcoming quarter is also driven by the surging oil price which has now crossed $80 per barrels mark in the international markets. However, we should take this improved optimism with utmost caution as the recent oil prices rally is not necessarily backed by demand fundamentals. The report found out that most respondents in Saudi Arabia are encouraged by the early signs of global economic revival and domestic economy and the same is reflected in the increase in optimism in the volume of sales, level of selling prices and net profits parameters. Among the non-hydrocarbon sectors surveyed, the manufacturing sector is the most optimistic with respect to four parameters including sales, new orders, selling prices and net profits. In the hydrocarbon sector, the BOI has shown an improvement for two of the three parameters - selling prices and net profits. The business community in Saudi Arabia has polled raw material cost as their top concern with 51 percent of respondents citing this as a major factor impacting their business. The manufacturing sector, followed by the trade sector is most concerned about increase in raw material costs, while availability of skilled labor is the top concern for transport & communications firms. In the oil & gas segment, project delays is the chief factor impacting business, while transport and development & discovery costs are also important issues. In another report, however, NCB said a continued depreciation of the US dollar and higher global commodity prices could lead Saudi Arabia to see higher inflation rates in 2010. Inflation is expected to stabilize at a high level by the end of 2009, NCB said in a research note issued on Monday and entitled “Inflation Bites Again.” “With domestic demand expected to recover in 2010, Saudi Arabia may be at a risk of higher inflation if the US dollar depreciates further. This, however, will not alter the position of SAMA (central bank), which has kept interest rates at the same level since its last cut in June,” it said. Inflation in Saudi Arabia rose to an annual 4.4 percent in September from 4.1 percent in August, its first increase in four months, which coincided with the month of Ramadan, which typically increases consumer demand. The most recent rates are still considered high in a country which has been accustomed for several years before 2008 to inflation rates below 1 percent. Inflation in the world's top oil exporter peaked at more than 11 percent in July 2008, the same month that saw oil hit a record price of $147 a barrel. The dollar, to which Saudi Arabia pegs its riyal currency, has been under downward pressure, which could boost the cost of imports for the major oil exporter, which relies heavily on imports to cater for its food needs. “The depreciation of the US dollar together with higher global commodity prices will feed into inflation through higher import costs,” NCB said. A weaker greenback could also add to wage pressures and input costs in the construction sector, it added. “To the extent that Saudi Arabia has fiscal room to increase current expenditure, the government will probably maintain subsidy programs to lessen the impact of inflation on lower income groups,” NCB said.
