RIYADH: A sharp fall in oil prices and tight credit conditions will hit Saudi Arabia’s economy in the first half of 2009 as the world’s top oil exporter grapples with the global financial crisis’ fallout, a SABB bank survey showed.
The fourth-quarter survey of 623 executives found that only 14 percent did not expect the global financial crisis to affect the Saudi economy, SABB, HSBC’s Saudi affiliate, said in a quarterly survey received late on Sunday.
Of the total respondents, 17 percent expected the oil-based economy to be affected by the crisis and 58 percent said there might be an impact. “This last group could very well take a more negative views, as the global economy enters deeper into recession,” SABB said.
The survey found that only 38 percent of respondents expect the evolution of bank lending to be “positive” over the next two quarters, down from 71 percent in the third quarter.
“Reduced availability of credit continues to depress confidence,” SABB said.
The percentage of firms who expect growth in their business in the next two quarters fell to 54 percent down from 89 percent in the third-quarter survey, SABB said.
“Overall, the business environment will remain strong during the first half of 2009, but clouds are forming in terms of lower growth expectations,” said the bank, which began the survey in February.
The SABB business confidence index fell 3.8 percent to 96.4, its first drop below 100, a sign that “firms are bracing for an anticipated slowdown in growth and business over the next two quarters”, said John Sfakianakis, SABB’s chief economist.
The fortunes of the private sector in the world’s largest oil exporter hinge on government spending, which in turn is linked to the price of crude oil. Oil has tumbled by more than half from record levels above $147 a barrel in July to about $50 now.
“In our previous survey, none of the respondents expected the oil price to fall below $110 per barrel,” SABB said.
Some 35 percent expect production capacity to fall in 2009 after the percentage of respondents to have reported a rise in production capacity fell to 53 percent in the fourth-quarter down from 74 percent in the previous quarter.
SABB said weaker confidence stemmed partly from a “double whammy of sliding oil prices and its psychological impact and the negative wealth affect of the stock market”. Saudi Arabia’s benchmark has tumbled more than 57 percent this year.
In a bid to encourage private sector lending, the Saudi Arabian Monetary Agency (SAMA) slashed its benchmark repurchase rate by 250 basis points since October and eased lending restrictions by reducing the reserve requirement.
Some 68 percent of respondents surveyed after these rate cuts anticipate another fall in interest rates of between 25 and 100 basis points, SABB said.
Inflation, meanwhile, is becoming less of a concern among business owners, with 30 percent of respondents saying they were concerned about rising prices, down from 64 percent in the last survey, SABB said.
“Certainly, the concern has switched dramatically from one of inflation to one of growth and deflation,” it said. Saudi inflation cooled slightly to 10.35 percent in September from 10.9 percent in August, which was at its highest level in at least 30 years.
