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Saudi economy forecast to grow 4 percent in 2010

Saudi Arabia is projected to record a four-percent growth this year on the back of government spending and higher oil production, says the Business Optimism Index (BOI).

May 23, 2010 2:11 by

Saudi Arabia is projected to record a four-percent growth this year on the back of government spending and higher oil production, says the Business Optimism Index (BOI) released here on Saturday by the National Commercial Bank (NCB), in association with Dun and Bradstreet South Asia Middle East Ltd. (D&B).

Releasing the BOI for the second quarter of 2010, Said Al-Shaikh, senior vice president and chief economist of NCB, said that the latest findings revealed that even though business sentiments were not as high as the previous quarter due to the uneven pace of global economic recovery, they were almost as strong, indicating continued recovery in Saudi Arabia.

“The results of the survey for the BOI confirm our forecasts that the Saudi economy will expand by 3.5 percent in 2010 from the low 0.15 percent in 2009, with the nonoil sector GDP projected to register a faster growth of 3.8 percent” Al-Shaikh said.

“The Saudi business community surveyed expected improved borrowing conditions, which are consistent with the gradual pickup in banks’ lending so far since the beginning of the year,” he added.

The survey for the current BOI was conducted in March 2010. Noting that this was a time when global economic recovery was being overshadowed by sovereign debt concerns in Europe, the report observes that the Saudi government has played a pivotal role in minimizing the impact of the financial crisis by stimulating domestic demand through large spending.

In view of the cash reserves built during the pre-crisis era combined with expectations of strong oil prices in the current year, the Saudi government has announced its largest ever budget for 2010. The budget focuses on increasing public spending by 13.7 percent in the current year and a 15.5 percent increase in capital outlays.

Saudi manufacturing sector optimism remains mostly stable compared to the previous quarter, says the report. But raw material costs continue to be a leading cause of concern for the sector, it adds.

The survey reports mixed optimism in the Saudi construction sector as optimism for sales volume stays intact but new order sees a slight dip. Selling prices are expected to rise amid high commodity prices in the international markets, it says.

A significant 72 percent of the companies in the hydrocarbon sector do not anticipate a change in price levels in Q2 as compared to the previous quarter. A modest 5 percent anticipate a drop and the remaining 23 percent expect prices to increase during Q2. The BOI for selling prices stands at 18, a 27 points slide from Q1 reading of 45. Following the decline in expectations of improvement in price levels, the BOI for net profits has gone down from 48 in Q1 to 18 in the current quarter.

The report shows that among the five sectors surveyed in the non-hydrocarbon segment, the finance, insurance, real estate and other business services sector is most optimistic regarding sales and order book position, while the construction sector is most optimistic with respect to level of selling prices. The manufacturing sector has emerged as the most optimistic with respect to hiring plans and inventory levels for Q2.

Backed by the improving financial outlook, 49 percent of the Saudi’s business community surveyed expects to invest in business expansion during Q2, 2010, a moderate improvement from 46 percent in Q1, 2010. With respect to borrowing conditions, 73 percent of Saudi businesses expect them to improve or remain unchanged during the current quarter.

Commenting on the findings of the survey, Phil Strange of Dun and Bradstreet South Asia Middle East, said, “The Saudi economy is showing consistent signs of improvement primarily driven by strong hydrocarbon prices in the international markets. This, combined with a continued fiscal expansionary stance, will provide further growth impetus to the Kingdom’s economy.”

The D&B Business Optimism Index is considered a key measure of the pulse of the business community, serving as a reliable benchmark for investors, policy makers and other observers of the economy worldwide. The index on Saudi Arabia is issued on a quarterly basis. The next BOI on Saudi Arabia will be released in July 2010.

Arab News

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