The National Commercial Bank's business optimism index (BOI) has remained virtually unchanged in the second quarter of 2010 as compared to the previous quarter, the latest study by the bank, in association with Dun and Bradstreet South Asia Middle East Ltd (D&B), showed on Saturday. In the non-hydrocarbon sector, the BOI for the volume of sales parameter has stayed stable at 72 in Q2 as compared to 73 in Q1, while that for new orders has dipped by seven points from 76 to 69 over the same period. Profitability expectations have also not shown much of a change over the previous quarter and have stayed virtually unchanged at 75 as compared to 74 in the last quarter. Respondents have however become cautious with their hiring plans in Q2 as the BOI for the Number of employees parameter has edged lower by seven points from 54 in Q1 to 47 in Q2. However, expectations regarding the Level of selling prices have strengthened for the fourth consecutive quarter with the BOI reading of 42. The latest Business Optimism Index findings showed that even though business sentiments are not as high as the previous quarter due to the uneven pace of global economic recovery, they are almost as strong, indicating continued recovery in the Kingdom. In KSA, the government has played a pivotal role in minimizing the impact of the financial crisis by stimulating domestic demand through large spending. In view of the cash reserves built during the pre crisis era combined with expectations of strong oil prices in the current year, the Saudi government has announced its largest ever budget for 2010. The budget focuses on increasing public spending by 13.7 percent in the current year and a 15.5 percent increase in capital outlays. The D&B BOI survey revealed that a significant 72 percent of the companies in the hydrocarbon sector do not anticipate a change in price levels in Q2 as compared to the previous quarter. A modest 5 percent anticipate a drop and the remaining 23 percent expect prices to increase during Q2. The BOI for selling prices stands at 18, a 27 points slide from Q1 reading of 45. Following the decline in expectations of improvement in price levels, the BOI for Net Profits has gone down from 48 in Q1 to 18 in the current quarter Commenting on the findings of the survey, Phil Strange, CFO of Dun and Bradstreet South Asia Middle East Ltd, said “the Saudi Arabian economy is showing consistent signs of improvement primarily driven by strong hydrocarbon prices in the international markets. This combined with a continued fiscal expansionary stance will provide further growth impetus to the Kingdom's economy. The D&B BOI study reveals a similar trend as business optimism levels have stayed relatively stable as compared to the last quarter. It is interesting to note that the business leaders are indicating a belief that oil prices are approaching their near term highs. The report shows that among the five sectors surveyed in the non-hydrocarbon segment, the finance, insurance, real estate & other business services sector is most optimistic regarding sales and order book position, while the construction sector is most optimistic with respect to level of selling prices. The manufacturing sector has emerged as the most optimistic with respect to hiring plans and inventory levels for Q2. Backed by the improving financial outlook, 49 percent of the Saudi's business community surveyed expects to invest in business expansion during Q2 2010, a moderate improvement from 46 percent in Q1 2010. With respect to borrowing conditions, 73 percent of Saudi businesses expect them to improve or remain unchanged during the current quarter. Dr. Said Al-Shaikh, senior vice president and chief economist of the National Commercial Bank, said “the results of the survey for the Business Optimism Index of the Q2 2010 confirm our forecasts that the Saudi economy would expand by 3.5 percent in 2010 from the low 0.15 percent in 2009, with the non-oil sector GDP projected to register a faster growth of 3.8 percent. “Saudi business community surveyed expected improved borrowing conditions, which is consistent with the gradual pickup in Banks' lending so far since the beginning of the year,” he added. The report also showed that 47 percent of non-oil businesses remain concerned about the cost of raw materials, with 71 percent of manufacturing firms citing it as the main factor affecting business. In the hydrocarbon sector, project delays have been most often cited as the main concern facing businesses. The survey for the Business Optimism Index for Q2 2010 was conducted in March 2010 at a time when global economic recovery was being overshadowed by sovereign debt concerns in Europe. The fear of a possible sovereign default severely dented investors' confidence and consequently led to a round of correction in international equity and commodity markets during the last quarter. However, the oil prices have remained relatively stable during the last few months which have helped the oil exporting countries, especially in the Middle East region, to continue their expansionary fiscal stance. 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.
