Saudi firms unnerved by euro zone credit crisis

Saudi Arabia's private sector leaders have revised down their outlook for oil prices and the domestic economy as they appear to be shaken by the euro zone crisis, a key bank in the Gulf kingdom said yesterday.

Although the world's oil powerhouse is armed with sufficient funds to deal with fresh financial trouble, the euro zone problem has upset the upbeat mood of the majority of the country's company managers, Banque Saudi Fransi (BSF) said.

"The fragility of the global economic recovery evidenced in Europe's debt crisis in many ways served as a reality check for Saudi business executives," BSF's Chief Economist John Sfakianakis said in a comment on the bank's third- quarter business confidence survey, released this week.

"Company managers revealed in the Business Confidence Index for the third quarter that they are more guarded now than they had been prior to the euro zone crisis about the resilience and pace of the country's economic recovery."

According to Sfakianakis, oil price volatility has been the most "potent risk" related to the European debt crisis for Saudi Arabia.

"As we have argued in the past, we do not foresee the Saudi banking system or the dollar-pegged riyal currency facing any systemic risks as a result of Europe-wide contagion." The system's overall capital adequacy ratio, at about 16 per cent, far exceeds the minimum regulatory requirement of eight per cent, and reported non-performing loans are around 3.2 per cent of total loans which is low as per global standards," he told Emirates Business.

His figures showed that nearly a third of Saudi Arabia's 2009 imports came from Europe, while Saudi exports to Europe more than tripled between 2003 and 2008. But the figures showed that Asia has taken over in recent years as a predominant trading partner, now accounting for nearly 55 per cent of exports, compared with Europe's 10.5 per cent.

"Business executives are more bearish than they were in the first and second quarters about where they see oil prices for the rest of the year. In the bank's first quarter and second quarter surveys, none of the respondents saw oil prices falling below $65 a barrel. This attitude has shifted since oil prices dropped from the mid-$80 to the mid-$60 level in May on the heels of Greece's debt troubles," said Sfakianakis.

According to the survey, some 35 per cent of business leaders expect crude prices to weaken below $65 in the next two quarters.

"Even above $60 a barrel, Gulf energy exporters, including Saudi Arabia, are more or less able to balance their fiscal budgets, however prices above $70 a barrel are needed to support longer-term investment plans, particularly in boosting oil and gas capacity," Sfakianakis said.

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