Saudi business mood recedes in Q1

The global downturn and a decision by Saudi Arabia to cut oil output through 2012 to give way to recovering production in Libya have dampened the business mood in Saudi Arabia although it remains robust.

The findings were a result of a survey of local businessmen conducted in December by the Gulf Kingdom’s largest bank in association with Dun and Bradstreet South Asia Middle East, a key global business information source.

The survey, part of the business optimism index (BOI) set up by National Commercial Bank (NCB), found that respondents are also less optimistic about the country’s non-oil sector.

It noted that the last months of 2011 witnessed sudden slowdown in economic recovery, underlined by uncertainty that has come to dominate the market.

It said economic recovery in 2011 was successively hit by the devastating tsunami in Japan, the current political turmoil in the Arab world, political disagreement in the US and Europe in times of extreme financial strain and the worsening sovereign debt crisis in Europe.

Citing estimates by the UN and other agencies, it said global economic growth would slow-down further in 2012, reflecting the impact of the above mentioned and several other factors, most notably fiscal austerity in many advanced nations, credit restraint in some key developing and emerging countries, and the cascading effect on international trade, credit, and financial conditions associated with the Euro zone’s sovereign debt crisis.

The United Nations estimates growth of world gross product at 2.6% for 2012 and 3.2% for 2013, which remains below the pre-crisis pace of global growth.

“Saudi businessmen remain quite optimistic about the beginning of 2012; however a drop in optimism levels is observed compared to the previous quarter. The hydrocarbon index has dropped to 40 from 63, which displays a robust outlook, but is less optimistic than a quarter ago,” said Manjeet Chhabra, General Manager, Middle East of Dun and Bradstreet South Asia Middle East Ltd.

“This is mostly because respondents expect business conditions to remain unchanged. Also, Saudi Arabia has cut back on its oil output which it had increased earlier to offset the loss in production from Libya.”

In the non-hydrocarbon segment, the BOI has edged lower by a marginal 6 points, NCB said in its BOI survey sent to Emirates 24/7.

It showed the manufacturing sector has displayed stronger optimism levels than the previous quarter. Despite some moderation in the composite index scores, all other sectors have a robust outlook going into 2012, the report said.

In the oil sector, the BOI survey revealed that Saudi Arabia’s hydrocarbon sector optimism has moderated in Q1 2012.

“The overall BOI composite score for the sector is 40, 23 points lower than the score in Q4 2011, which is at a seven quarter low and due to lower BOI scores for all three parameters,” NCB said.

“In the non-oil sector, the BOI survey reveals a slight drop in the composite index, and this is expected in the current scenario where most forecasts are predicting a slowdown in global growth.”

The report said the fall in the composite index is due to a drop in the BOI values of five parameters-- the only exception being the New Orders parameter.

“Looking ahead, the factors that are likely to adversely influence operations in Q1 2012 reflect that business conditions will continue to be supportive. Around 31% of the respondents do not anticipate any negative factors coming into play in the first quarter. This number has dropped from 46% in the previous quarter.”

Commenting on the findings of the survey, Said Al-Shaikh, Senior Vice President and Group Chief Economist of the NCB said:“Largely attributed to rising global uncertainties, especially on fears about the implications of the European sovereign debt crisis on the global economic outlook for 2012, the Saudi business sentiment has weakened in Q1 2012 compared to Q4 2011. “Consequently, 31% of the respondents in the non-hydrocarbon sector have indicated that they do not anticipate any negative factors to influence their businesses in the Q1 2012 compared to a higher 46% in the Q4 2011.”

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