Strong oil prices and soaring public spending have boosted business confidence in Saudi Arabia, according to a new survey conducted by the kingdom's largest bank and a global information agency.
The Business Optimism Index (BOI) for the first quarter of 2010, launched by National Commercial Bank (NCB) and Dun & Bradstreet South Asia Middle East (D&B), showed sentiment about the economy has largely improved as oil prices remain firm and public capital spending climb to a record high. In a forward to the index, NCB noted that with increased hydrocarbon revenues, governments across the Gulf have been able to extend stimulus measures to support the burgeoning economic recovery.
In Saudi Arabia, the recently announced budget allocation of a record SR260 billion (Dh254.65bn) towards capital expenditure in 2010 will continue to provide growth impetus to the country going forward, it said.
"The survey for the first quarter was conducted in late December 2009 amid an environment of relatively buoyant commodity prices and renewed expansion in economic activity around the globe," NCB said.
"There are also early signs of liquidity returning back to the Saudi market, reflecting Saudi Arabian Monetary Agency's (Sama) accommodating monetary stance."
The index's findings reveal that sentiment has continued to improve in the first quarter across all major sectors of the Saudi economy, it said. In the non-hydrocarbon sector, firms are increasingly optimistic regarding the volume of sales and new orders outlook, indicating demand is continuing to strengthen.
Expectations have also firmed, for a third consecutive quarter, regarding the level of selling prices with nearly 43 per cent of respondents expecting increases during the first quarter of 2010.
In the hydrocarbon sector, the report said, a major jump has been seen for the 'number of employee' parameter, suggesting oil and gas companies intend to resume hiring on the back of recovery in oil prices over the last year. It said better optimism levels regarding net profits have also been maintained.
"The profits achieved by Saudi companies in the fourth quarter of 2009 gave a boost to the continuous improvement in business sentiments in Saudi Arabia which was reflected by the quarterly business optimism index since mid last year," Said Al Shaikh, Senior Vice-President and Chief Economist of the NCB, said.
"By reading the index and analysing the systematic and continuous trend drawn from the results of the past three quarters, we can fairly say that we have reached a stage of relative stability in the macroeconomic outlook of Saudi Arabia after the global financial crisis."
"As we see a revival in global trade and a gradual return of cross-border investments and flows of liquidity among capital markets, the prevailing atmosphere of optimism among the Saudi business community reveals a relatively constant trend, but one that has important implications to the recovery of our domestic economy. This trend is partly charted by the expansionary fiscal policy pursued by the Saudi Government, which had a pronounced impact in continuing to stimulate the local economy and enhance the confidence of businesses in the oil and non-oil industries."
The index also shows that among the five industry sectors surveyed in the non-hydrocarbon segment, manufacturing is most optimistic with respect to net profits, level of selling prices, number of employees and level of stock, indicating renewed momentum in the kingdom's goods-producing sector.
"Backed by the improving economic outlook, 46 per cent of the Saudi's business community surveyed expects to invest in business expansion during the first quarter, a moderate improvement from 40 per cent in the fourth quarter of 2009."
With respect to borrowing conditions, the survey found that 77 per cent of Saudi businesses expect them to improve or remain unchanged in the first quarter.
"The latest results of the BOI show that Saudi companies are optimistic about near-term business prospects," said Hugo Sellert, Economist at D&B.