Saudi business optimism is mixed amid conflicting views of the strength of the global economic recovery, National Commercial Bank's “Business Optimism Index for Saudi Arabia for the third quarter of 2010” released on Tuesday showed. The Composite Business Optimism Index for hydrocarbon sector has improved significantly to 43 in Q3 from 21 in Q2 due to an improvement in selling prices outlook, suggesting that oil is perceived to be oversold during the recent market correction where oil prices fell 20 percent from their early May peak However, the Composite Business Optimism Index for the non-hydrocarbon sector, in contrast, has dropped by 12 points to 49 driven by a drop in sales volume and selling price outlook Nonetheless, the manufacturing sector, in contrast to the other 4 non-hydrocarbon sectors, expects demand to stay robust as the BOI for both sales volume and new orders remain relatively unchanged, the study revealed. Factors impacting business remains fairly stable in Q3 as compared to the previous quarter. Raw material costs remain the most important business concern in Q3, with 44 percent of the non-hydrocarbon respondents citing it as the key business factor which might impact their businesses. Availability of finance also continues to be an important challenge as 32 percent of the survey participants' expect it to impact their business in the third quarter. Meanwhile 40 percent of firms plan to invest in business expansion. Commenting on the findings of the survey, Dr. Said Al-Shaikh, senior vice president and chief economist of NCB, said “while global economic recovery is predicted to continue, it was apparent that the downside risks had increased recently, following the Europe's sovereign debt troubles. Growing concern over the ability of Greece and other European states to service their sovereign debt has weekend confidence in recovery, causing greater volatility in global financial and commodity markets including oil. Accordingly, the softening of BOI of the non-hydrocarbon sector in the third quarter, compared to the previous quarter is consistent with such developments and remains in line with the NCB forecast for the non-oil GDP to grow at a moderate level of 3.8 percent in 2010.” Associate director of Dun and Bradstreet South Asia Middle East Ltd - NCB's associate in the study - Pawan Bindal, said: “The recent sovereign debt issues in Europe and the typical slowdown in business activity in the Kingdom over the summer months has depressed non-hydrocarbon business optimism for Q3.” “The success of the delicate balancing act between fiscal stimulus to support the economic recovery and austerity measures to cut ballooning deficits taking place in major economies around the World will be a major theme throughout 2010 and will undoubtedly influence business sentiment in the Kingdom.” “However, the hydrocarbon sector business optimism has increased supported by a strong oil price expectation and will facilitate the government's commitment to capital spending thus stimulating the Saudi economy. This lends support to what is still an optimistic business outlook even after considering the non-hydrocarbon optimism decline from the previous quarter,” he added.
