Saudi Arabia’s companies remain optimistic about business in the second quarter as most of them expect oil prices to climb further on Iran tensions despite a slight decline in business expansion plans.
While the business optimism index (BOI) of the Gulf Kingdom’s largest bank edges down slightly in the non-oil sector, it gains three points in the hydrocarbon sector, according to the survey sent to Emirates 24/7.
The business environment in Saudi Arabia remains supportive. 33% of the respondents in the non-hydrocarbon sector have said that they do not expect any negative factors to influence their business operations in the second quarter of 2012 compared to 31% in the first quarter of 2012,” National Commercial Bank (NCB) said in its Q2 BOI survey, which is conducted in collaboration with Dun & Bradstreet, a global business information firm.
It said shortage of skilled labor is the most important concern for the respondents, with 28% citing it accordingly, while availability of finance will prove to be a worry for 14% of the respondents. Inflationary pressures will impact nine% of the businesses, it added.
The report showed business expansion plans have weakened in Q2 2012 compared to a quarter ago, with 40% of the non-hydrocarbon companies saying they would invest in business expansion in Q2 2012. It showed the number has decreased from 60% in Q1 2012.
The survey showed Saudi Arabia’s hydrocarbon sector optimism has improved in Q2 2012 with the overall BOI composite score for the sector standing 43, three points higher than the score in Q1 2012, due to higher BOI scores for all three parameters.
With respect to the Level of Selling Prices parameter, 53% of the respondents to the survey expect oil prices to rise further and 37% anticipate that prices will remain unchanged in Q2. About 10% of the respondents anticipate a drop in prices in Q2 2012.
“The majority of respondents expect prices to increase as geopolitical tensions with respect to Iran’s nuclear program continue to dominate sentiment in the crude market,” NCB said.
Turning to the non-oil sector, the survey showed Saudi business sentiments in Q2 remain steady with respect to the previous quarter.
The composite index for the non-hydrocarbon sector stands at 52 in Q2 2012, just two points lower compared to the index score in the first quarter of 2012. “The Saudi economy’s growth will continue to be driven by public sector spending and increased bank lending. One of the fastest growing sectors is expected to be construction, the main beneficiary of government spending.”
The report showed related sectors like suppliers of raw materials and services
will also gain from the high level of government spending.
It said public spending is seen as the key driver of non-oil economic growth in the current fiscal year to counteract the dampening impact of factors external to the Saudi economy such as geo-political tensions in the MENA region and the debt situation in Europe.
Recession in Europe will not only impact oil demand and oil prices, but will also hurt the Kingdom’s non-oil exports to the continent, it added.
“Growth in 2012 is expected to be lower than in 2011 due to a weaker global economy and lower oil output,” NCB said, noting that Saudi Arabia recorded a real GDP growth rate of 6.77% in 2011.
The manufacturing sector recorded one of the strongest growths among all sectors at 12.37%, followed by the construction sector at 11.62%.
“The BOI survey reveals a steady composite index, as businesses and consumers remain assured by the government’s commitment to support the economy despite a weak global environment,” it said.
“All six parameters show a sideways movement in their index values for Q2 2012, with marginal increases or decreases.”