Saudi Arabia's hydrocarbon sector optimism has moderated in Q1 2012, the National Commercial Bank said in its Business Optimism Index for the first quarter of 2012. The overall BOI composite score for the sector is 40, 23 points lower than the score in Q4 2011, which is at a seven quarter low and due to lower BOI scores for all three parameters. With respect to the Level of Selling Prices parameter, 45 percent of the respondents expect prices to rise further, while 50 percent anticipate that prices will remain unchanged in Q1. The report noted that global economic growth will slowdown further in 2012, reflecting the impact of the above mentioned and several other factors, most notably fiscal austerity in many advanced nations, credit restraint in some key developing and emerging countries, and the cascading effect on international trade, credit, and financial conditions associated with the eurozone's sovereign debt crisis. Just 5 percent of the respondents anticipate a drop in prices in Q1 2012, which reflects the risk premium associated with geo-political tensions in crude prices. However, the majority of respondents expect prices to stay range bound since demand concerns remain. The BOI score for level of selling prices is at 40 in Q1 2012, compared to 60 in the previous quarter. Consequently, the net profits expectations of the industry players have also shown moderation from the previous quarter, the BOI for which is recorded at 33, compared to 58 in the last quarter. The BOI for number of employees has reduced to 45 in Q1 2012 from 75 in the fourth quarter of 2011, which again reflects the overall lowering of expectations. The BOI survey also showed a slight drop in the non-hydrocarbon sector composite index, and this is expected in the current scenario where most forecasts are predicting a slowdown in global growth. The decrease in the value of the composite index is due to a drop in the BOI values of five parameters; the only exception being the new orders parameter. The BOI for the volume of sales parameter has registered a value of 66 compared to 70 in Q4 2011, while the BOI for the new orders parameter is up by 6 points to 67. The BOI for level of selling prices stands at 27 in Q1 2012, down from 52 in the last quarter of 2011. The inflation rate in Saudi Arabia recorded a rise of 5 percent in the third quarter of 2011 compared to the corresponding quarter of the preceding year. However, forecasts for inflation in the current year have been lowered due to the drop in global commodity and food prices. The moderation in expectations in demand and prices has pulled expectations for profits and inventory levels lower. The BOI for the net profits parameter is recorded at 59 in Q1 2012, down from 67 in the fourth quarter of 2011. Respondents are slightly less optimistic with respect to inventories compared to Q4 2011; the BOI for level of stock stands at 39 in Q1 2012, down from 43 in the previous quarter. The BOI for number of employees remains steady, dropping marginally by a single point from 51 in the last quarter of 2011. Commenting on the findings of the survey, Dr. Said Al-Shaikh, Senior Vice President and Group Chief Economist of the National Commercial Bank, said "largely attributed to rising global uncertainties, especially on fears about the implications of the European sovereign debt crisis on the global economic outlook for 2012, the Saudi business sentiment has weakened in Q1 2012 compared to Q4 2011. Consequently, 31 percent of the respondents in the non-hydrocarbon sector have indicated that they do not anticipate any negative factors to influence their businesses in the Q1 2012 compared to a higher 46 percent in the Q4 2011.” “Meanwhile, shortage of skilled labor is the most important concern for both the hydrocarbon and non-hydrocarbon sectors. However, despite the moderated business sentiment for the first quarter, business expansion plans have improved in Q1 2012 compared to the previous quarter. In fact, 60 percent of the non-hydrocarbon companies have indicated that they would invest in business expansion in Q1 2012, which increased from 51 percent in Q4 2011. Apparently, this suggests that Saudi businesses are assuming the moderated business environment in Q1 2012 to be a short-time matter, as the higher number of companies that plan for business expansion would indicate they believe that the medium-term outlook remains very robust," he added.
