Strong oil prices and expectations they will remain high through 2011 have lifted Saudi Arabia’s general business mood while banks could be encouraged to end nearly two years of curbs on lending, according to a Saudi bank.
More than 80 per cent of local businessmen surveyed by Banque Saudi Fransi (BSF) said they expected crude prices to remain above $80 in the coming few months while 44 per cent expected prices to exceed $90 a barrel.
BSF said its business confidence index rose to 101.3 points in the first quarter of 2011 from 100.2 points in the fourth quarter of 2010, adding that it is far higher than the 99.4 points it scored in the first quarter of last year.
“Expectations that oil prices will hold their strength in the first half of the year have encouraged a good improvement in business confidence among Saudi Arabia’s business leaders, who expect follow-on benefits in consumption patterns, revenues and stock market performance,” BSF said.
“More than 80 per cent of respondents to BSF’s first quarter business confidence survey foresee oil prices persisting above $80 a barrel in the coming two quarters, including 44 per cent expecting prices above $90.
Oil price fluctuations directly influence business sentiment in Saudi Arabia since the state derives more than 85 per cent of revenue from exports of crude oil.”
In a study sent to Emirates 24/7, BSF said the survey showed firm oil prices would spur greater lending by the kingdom’s banks, which were extremely reluctant to extend credit last year despite having ample liquidity.
It said the base value of its 100-point survey represents the third quarter of 2009, adding that the first quarter survey, conducted between December 23 and January 8, drew on perspectives of top managers in finance, real estate and construction, information technology, petrochemicals, tourism and advertising.
“Business executives displayed confidence that the lending attitude of banks is poised for a considerable upturn in the next six months.
Some 78 per cent of respondents described the upcoming lending attitude of banks as very good or excellent, more than double the number who offered the same answer in the fourth quarter of 2010.
Defrosting the credit market and improving borrower appetite are among the key hurdles before the private sector’s recovery.”
The study said a substantial 76.7 per cent of business leaders expect Saudi Arabia’s economy to perform much better in the next two quarters, up from 41.9 per cent who gave that response in the fourth quarter.
“That is the strongest macro-economic outlook among businesspeople since the survey was launched in 2009, reflecting optimism as oil prices fluctuate around more than two-year highs,” the study said.
“Confidence in equity market investments improved markedly among businesspeople, with almost 75 per cent of respondents expecting positive performance in shares in the first half of this year, up from 34.5 per cent in the fourth quarter of 2010…..petrochemical and banking shares are most likely to gain from the ripple effects of robust oil prices.”
BSF noted that in its fourth quarter survey, nearly 26 per cent of business leaders continued to be vigilant in their oil price outlook bearing in mind the fragility of the global recovery, and said they expected oil prices would not surpass $75 a barrel, including some who eyed oil below $65.
“Following two months of recharged oil prices – averaging $84 a barrel in November and $89 in December – executives have abandoned this hesitation. In our first quarter survey, only three per cent of business leaders think oil prices will fall below $75 in the next six months,” it said.
“The largest proportion of respondents, nearly 44 per cent, foresee prices ranging between $90 and $100, while another 37 per cent expect the price of crude to fluctuate within a $80-$90 band.”
According to the study, high oil prices have enabled Saudi Arabia to replenish its foreign assets to pre-financial crisis levels of above SR1.6 trillion, giving it plenty of room to manoeuvre a budget including record expenditure projections of SR580 billion this year.
“A full 78 per cent of respondents to the survey expect the government will continue overspending its budget forecasts in 2011. State overspending reached 25.5 per cent in 2009 and 16 per cent in 2010,” it said.
It said government spending has been the key driver of economic growth since the onset of the financial crisis. In 2010, government sector GDP growth hit 5.9 per cent, a 13-year peak, while private sector growth rose only slightly to 3.7 per cent from 3.5 per cent a year earlier.
“Business leaders are confident the economic recovery will continue to build momentum this year…. some 76.7 per cent of respondents (against 41.9 per cent in the fourth quarter of 2010) said macroeconomic performance would be much better in the next two quarters.
The remaining respondents said the economy would perform better. Greater economic activity is not likely to feed inflationary pressures, however, the survey found.”