Against the backdrop of global economic downturn, Saudi Arabia, just like any other country, was not insulated from, much less immune to its adverse consequences. However, the gravity of the fallout on the domestic economy was, to a large extent, subdued. Latest economic indicators point to a favorable economic climate in the second quarter despite a perceived fall as compared to the first quarter. Rajesh Mirchandani, CEO of Dun & Bradstreet South Asia Middle East Ltd, hesitant to describe the present economic developments as positive amid the prevailing global uncertainties, said though the outlook for the Kingdom “is comforting”. In the region, he said, Saudi Arabia “is leading the pack” because its economy “is more robust, more solid and gives consistent stories.” At the launch of the “Business Optimism Survey for Q2 2009” at the National Commercial Bank (NCB) headquarters in Jeddah on Tuesday, Mirchandani said that even though “the sentiments in the Kingdom of Saudi Arabia have dipped as compared to the last quarter,” however, certain sections of the business units are still optimistic on the prospects of Saudi Arabia's economic growth as a substantial 46 percent of the respondents have shown intentions to carry on business expansion plans. “This shows the resilient nature of Saudi Arabia's business community in light of global financial meltdown,” he stressed. “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 subprimes collateralized debt obligations,” he added. The observations were reflected in the BOI survey which showed robust investment plans for Q2 2009 despite divided expectations over the impact of the financial crisis. Moreover, a significant number of Saudi companies expect to invest in business expansion, plant & machinery and technology during the next quarter. The survey showed that among the various sectors of the economy, the construction sector is most optimistic with respect to volume of sales, net profits, new orders and number of employees. The profitability outlook for the hydrocarbon sector for Q2 2009 is more positive as compared to the non-hydrocarbon sector, but is much lower as compared to the level in Q1 2009. Hydrocarbon companies are most bullish on the net profits outlook. Fifty three percent of the hydrocarbon companies expect an increase in profits and 35 percent hope to hire new employees during the next quarter. The survey revealed that more than a quarter of the non-hydrocarbon companies expect to hire new employees, though with 38 percent of them expecting economic recovery to begin only in 2010.The BOI for the overall profitability of the non-hydrocarbon sector has dipped to 12 as against 36 in the previous quarter. Construction sector leads BOI survey in sales, profitability, new orders and hiring plans. Business expansion plans continue to lead investment outlay. Trade, hotels, transport & communications sector are most bullish while services sector is most upbeat on investment in addition to technology. Nonetheless, the survey showed ambivalence about the impact of global financial turmoil on the businesses. Saudi companies differ in their opinion regarding the impact of the crisis on their businesses, although expectations of being negatively hit lead the survey. It forecast that the demand is expected to weaken as the optimism index for volume of sales for Q2 2009 has dropped to 12 as against 38 in the last quarter. Most business units are also adjusting their inventories in light of expected slowdown in sales revenues. Forty percent of all businesses in the non-hydrocarbon sector anticipate an increase in sales volume for the second quarter of 2009 as compared to 59 percent in Q1 2009; 60 percent of businesses expected an increase in profits in Q1 2009, but that number has dropped to 40 percent in Q2 2009; 43 percent expect to get new orders during Q2 2009 as against 57 percent in Q1 2009. The survey, however, showed in general that that business optimism in Saudi Arabia is subdued for Q2 2009, as compared to Q1 2009 amid the global financial recession. Fifty five percent of the business units in non-hydrocarbon sector expect to be affected by the global financial meltdown, while 35 percent expect their businesses to be resilient to the global financial crisis. The survey further revealed that the prices of goods and services were expected to retreat further this quarter. This is supported by the fact that the inflation in the Saudi Arabia fell to 7.9 percent in January as compared to 9 percent in December 2008. The survey said 35 percent of the oil & gas sector businesses expect their selling prices to decrease and 58 percent of the companies have cited drop in oil prices to be the top business concern, while 23 percent feel that falling oil prices will be the leading business risk during the second quarter of this year. Even though most parameters were depressed in Q2 2009 survey compared to Q1 2009, the employment indicator remains in the comfortable zone since 63 percent of the business units surveyed will maintain their hiring plans at the same levels while 27 percent will increase their labor force. In addition, the resilience and favorable outlook for the construction sector will have positive effects on other sectors, given the strong interlinkages.” The survey further revealed a slowdown in hiring plans. While 47 percent of the companies expected to hire new employees during the first quarter, only 27 percent predict that they will raise their manpower count during Q2 2009. A significant 60 percent of the companies polled cited at maintaining inventory levels to that of last quarter. “This indicates a cautionary approach applied by the companies in light of expected slowdown in demand levels,” the report said. Commenting on these findings Dr. Said Al-Shaikh, senior vice president and chief economist at NCB, said “the BOI 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.” The “Business Optimism Survey for Q2 2009” was prepared by Dun & Bradstreet South Asia Middle East Ltd in collaboration with NCB. __
