Saudi economy starts to recover from crisis

Saudi Arabia's economy has started to recover from the global financial turbulence and business confidence is rebounding although it will still shrink through the year, the kingdom's largest bank said yesterday. The National Commercial Bank (NCB) said a business index it has created recently with the US's Dun and Bradstreet South Asia Middle East Ltd (D&B), one of the world's largest financial data and business information provider, has shown a substantial improvement in business confidence in the kingdom. The Business Optimism Index (BOI) showed the country's gross domestic product could still contract by about 0.9 per cent in 2009 but expected it to recovery by about 2.9 per cent in 2010. In a statement sent to Emirates Business , NCB said the survey was conducted in June amid "improving signs of a global economic recovery with oil prices soaring to their seven month high of $70 per barrel." It shows that business optimism in Saudi Arabia has improved substantially in the third quarter as compared to the second quarter, with all business parameters reflecting a marked improvement over the figures of the last quarter figures. The survey also reveals that despite global economic slowdown, the Saudi businesses have robust investment plans for the third quarter of this year as 36 per cent of them plan to increase investment in business expansion, while 42 per cent are expected to maintain expansion expenditure at second quarter levels. "The results of the Business Optimism Index for the third quarter indicate an improvement in the sentiments of the local business community and depict a stronger confidence in the local economic climate for the three months to come," said Said Al Shaikh, NCB's Senior Vice-President and Chief Economist. "The positive connotations in these findings will reflect on the performance of the Saudi economy in the second half of this year. This direction was also pinpointed in the second quarter profits of Saudi companies, which have altogether affirmed consistency in growth and stability in the macro economy despite the repercussions of the global crisis on the business and financial sectors." Rajesh Mirchandani, CEO of Dun and Bradstreet South Asia Middle East, said: "In light of increasing signs of the global recession bottoming out, the outlook of the Saudi Arabian business community in the third quarter is looking more positive. The BOI for the overall profitability of the non-hydrocarbon sector has risen to 42 as against 12 in the previous quarter. Speaking to reporters in the Red Sea port of Jeddah after releasing the survey, he said: "This is backed by a surge in BOI for volume of sales which currently stands at 49 as compared to 12 during the last quarter. The study further confirms the current inflationary trend and cites that downward pressure on prices of goods and services will subside as BOI for the same has recovered from the lows of -18 in the last quarter and stands at -1 for the third quarter". He said with the recent oil price rally, sentiments in the hydrocarbon sector have shown a marked improvement as the BOI for net profits now stands at 38 as compared to 23 in the second quarter. "However, majority of the business units in the sector are uncertain on the sustainability of current oil prices as the BOI for Level of Selling prices for the hydrocarbon sector has retreated further to -23 as compared to -18 in the last quarter. Project delays still remain the major concern for the oil & gas companies. As of this quarter, 70 per cent of the businesses in the sector expect the global recovery to start in 2010 as opposed to the 38 per cent who polled last quarter." BOI's forecasts about the performance of the Saudi economy this year appears more optimistic than those by the Saudi American Bank (Samba), which expected a contraction of 1.2 per cent in 2009. Both the new survey and Samba based their assumption on a sharp fall in oil prices and a cut of more than one million barrels per day in Saudi Arabia's crude output. The sharp decline in the oil sector is expected to offset a modest growth in the non-hydrocarbon sector this year, said Samba. As for 2010, Samba was more optimistic about the Saudi economy, the largest in the Arab world, predicting a real growth of 4.4 per cent. "The economy's performance in 2010 will depend to a large extent on how far the global economy recovers. Stronger global demand should lift oil prices, and thereby allow an increase in Saudi crude production. A global recovery would also improve the outlook for the kingdom's main non-oil exports – petrochemicals and refined products demand," said Samba. "Assuming that international banks return to the Saudi corporate market in some numbers, then credit to the local private sector should begin to flow again, helping to boost investment… private consumption growth will depend largely on the performance of the Saudi stock market which is difficult to call, but should trend upwards in line wit