JEDDAH: The global financial crisis is not likely to last long. “Our assessment is it will begin its recovery in 2010,” Dun & Bradstreet’s CEO Rajesh Mirchandani said while presenting the Business Expectations Survey for Saudi Arabia for Q2 at a press conference at the National Commercial Bank (NCB) here yesterday.
“Saudi Arabia is least affected by the global economic crisis, however Saudi business optimism remains subdued amid the global economic uncertainty,” said Mirchandani, who was accompanied by Said Al-Shaikh, senior vice president and chief economist at the NCB.
The survey of 500 business owners and senior executives was conducted last month, against the backdrop of oil prices hovering around the $45 per barrel after rising to record highs of just under $147.27 per barrel in July 2008 and deepening recession in most of the Western countries. “Low oil prices in conjunction with falling oil exports will translate into slower growth for the Kingdom in 2009 as compared to the previous year.”
Despite slower growth forecast, Saudi Arabia is expected to weather the financial storm without taking a huge battering due to the country’s strong economic fundamentals, huge reserves accumulated during the past few years, prudent use of these reserves and limited exposure of its banks to the real estate market and to US subprime collateralized debt obligations, the survey said.
“After registering large budget surpluses for several years, the Saudi budget for 2009 is forecast to register a deficit. The government is committed to fiscal spending despite low oil prices so as to counter the effects of the global economic downturn. However, some sectors of the Saudi economy might face slowing growth and project delays. The business optimism survey shows that the global economic slowdown has significantly subdued business sentiments for Q2 as compared to Q1 this year,” he said.
According to the Saudi Arabia Business Optimism Index powered by Dun & Bradstreet and NCB, business optimism indices have dropped for all the six parameters of the survey. More than a quarter of the non-hydrocarbon companies expect to hire new employees. Inflationary pressures are expected to retreat further. The fall in prices of commodities in international markets together with a drop in rents has led to receding inflationary pressures in the Kingdom.
According to SAMA (Saudi Arabian Monetary Agency) figures, inflation hit a 12-month low in January this year and is expected to slide further.
The construction sector leads the survey in sales, profitability new orders and hiring plans outlook. Business units remain cautious about holding inventories. Hydrocarbon companies are most bullish on the net profits parameter, with more than half expecting higher profits.
The survey shows that business expansion plans will continue to lead investment outlays, with trade, hotels, transport and communications sectors remaining most bullish. The services sector is most upbeat on investment in addition to technology. More than half of the business units in the non-hydrocarbon segment expect to get impacted by the global financial crisis. Rising prices of raw materials and availability of finance are leading business concerns in the non-hydrocarbon sector. However, drop in oil prices is the dominant concern for the oil and gas sector, and project delays is the chief risk facing the hydrocarbon sector, the survey report says, adding that 38 percent expect economic recovery to begin only in 2010.
The profitability expectation for the Q2 has taken a hit with the Business Optimism Index level dipping to 12 as against 36 in the previous quarter. However, 40 percent of the units surveyed anticipate increase in net profits in Q2 and 31 percent expect to maintain profitability levels while 28 percent anticipate a decline.
According to the survey, 35 percent of the businesses in the oil and gas sector expect their selling prices to fall and 48 percent expect them to stay at current levels, while only 17 percent prices to go up.
Despite economic slowdown in many of the world’s economies, Saudi businesses are upbeat about their investment plans for the second quarter of this year.
“The survey clearly reflects an overall decline in business sentiment regarding the economic environment during the next three months, which indicates the negative impact from the global financial crisis on the Kingdom’s economy, albeit to a lesser degree than it did for other countries,” Al-Shaikh said.
