The Business Optimism Index (BOI) survey for Saudi Arabia for Q4 2013 survey reveals rising optimism among the non-hydrocarbon sectors while the hydrocarbon sector outlook moderates on q-o-q basis.

The National Commercial Bank (NCB), in association with Dun & Bradstreet South Asia Middle East Ltd. (D&B), has released the survey.

The survey for the Business Optimism Index for Q3, 2013 was conducted in September 2013 with inputs from 500 companies in the Kingdom across all key sectors of the Saudi Economy.

These businesses were asked to indicate if they anticipated an "increase", "decrease" or "no change" on key outlook indicators, including sales revenues, selling prices, volumes sold, profits and number of employees. The survey also captures respondent’s feedback on current business challenges and their future investment plans.

Economic growth in Saudi Arabia is expected to pick up in the second half of the year, led by a rise in oil production and continued strong domestic demand. According to data released by state agencies at the beginning of September, the Saudi economy posted real GDP growth of 2.7 percent y-o-y in the second quarter, with the hydrocarbon sector showing contraction of 3.7 percent as oil production remained below 2012 levels. This was however an improvement over its 6.3 percent y-o-y decline in the first quarter. Despite its contraction in the first two quarters, activity in the oil sector is expected to revive in the second half of the year.

Latest figures from OPEC show that crude oil production in the Kingdom has steadily increased from 9.1 million bpd in Q1 to 9.5 million bpd in Q2 and 10.2 million bpd in August. As growth in oil production picks up in the coming months, the negative contribution to real GDP growth from the oil sector is expected to fade away. The oil market is expected to benefit from recovering demand from the OECD nations.

The BOI survey reveals a y-o-y rise in optimism levels for Saudi Arabia’s hydrocarbon sector; however the BOI score in Q4 has moderated compared to the previous quarter. The composite BOI for the hydrocarbon sector stands at 30 for Q4, 2013 compared to 25 in Q4, 2012 and 39 in Q3.

The decline in the quarterly composite score is mainly attributed to the weakened outlook of the sector respondents with respect of selling prices and profitability. The BOI for selling prices stands at 13 in Q4, 2013, which is 17 points lower than the BOI in Q3.

The composite business optimism index for the non-hydrocarbon sector has improved by 5 points q-o-q to stand at 54 in Q4 2013. The improvement in outlook is due to stronger expectations on volumes, new orders and profitability as respondents expect new projects/contracts, seasonal improvement in demand, and better market conditions.

The BOI for Volume of Sales stands at 63 compared to 52 in Q3, with a majority 72 percent foreseeing an increase in sales. The BOI for Net Profits parameter has gained 9 points this quarter and reached a score of 60 points; 69 percent of the respondents anticipate profitability to improve in line with the increased expectations on sales volumes and demand. The hiring outlook remains strong in Q4 with the BOI at 47 points; 50 percent of the respondents will increase their head count in Q4 2013.

Said Al-Shaikh, SVP and group chief economist of the NCB, said: “The BOI of 4Q, 2013 is indicating that more Saudi companies expect business conditions to improve further in the near term, as all the parameters, with the exception of the selling prices, reflected increases, yet with varying degrees across the different non-hydrocarbon sectors. Respondents to the survey in the non-hydrocarbon sectors expect volume of sales to be strengthening, with a widespread expectation of rising new orders.”

“Attributed to the pace of awarded contracts so far this year, the construction sector has shown the most optimistic outlook among all non-hydrocarbon sectors. Despite the regional uncertainties, 65 percent of the companies in the non-hydrocarbon sector, and 68 percent in the hydrocarbon sector are not anticipating negative factors to impact their businesses in the 4Q, 2013. Reflecting improved optimism, the investment outlook for the non-hydrocarbon and hydrocarbon sectors remains steady with 52 percent and 55 percent of the respondents in each, respectively, have expansion plan,” he added.