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Qatar’s business community records a surge in optimism in Q1 2011

The Composite Index for the non-hydrocarbon sector has surged to 61 in Q1 2011 influenced by improved demand forecasts.

January 21, 2011 11:55 by

The survey for the Business Optimism Index for Q1 2011 was conducted in December 2010 amidst an environment where many economic analysts are of the view that the global economy will post strong growth near 4% in 2011; a slightly slower pace than in 2010. The likelihood of a double dip recession has receded but several challenges still remain: the European debt crisis; the potential effects of the withdrawal of monetary stimulus packages in some countries and extension of stimulus in others; continuing currency tensions; and the fragility of the banking sector in some advanced countries posing a threat to their economic recovery. The global economy will continue to be characterized by a two speed growth process. Emerging economies led by China, India, Brazil and Russia will be the engines of global growth in 2011 while the developed countries such as the US, UK and Western European nations will face more modest growth.

Data released by the Qatar Statistics Authority shows considerable recovery in the economy in Q3 2010. The nominal GDP grew 21.1% year-on-year totaling QAR 111.25 bn in Q3 2010. On a quarterly basis the nominal GDP grew 13.1% in Q3 2010 compared with the second quarter. Growth in Q3 was driven by the mining and quarrying sector while the industrial sector excluding mining and quarrying grew 10.2% in Q3 2010 over the Q2 2010 figure. According to IMF estimates non-oil real GDP growth was 11.5% last year and will slow down slightly to 11% in the current year.

Commenting on the findings of the survey Phil Strange, CFO of Dun and Bradstreet South Asia Middle East Ltd. said:

‘The Qatari business community is on a high certainly in the non-hyrocarbon sector where optimism is approaching pre-financial crisis and global recession levels. A combination of current economic good news both domestically and internationally and the longer term award of the 2022 FIFA World Cup to Qatar is significantly buoying sentiment. The hydrocarbon sector optimism, while still positive, has dropped from Q4 2010 levels as there is a growing belief that oil and gas prices will stabilise at current levels and not continue their recent strong upward trends’.

Hydrocarbon Sector

The D&B BOI survey finds that Qatar’s hydrocarbon sector optimism has retreated in the first quarter of 2011. The composite BOI score for the sector has dropped to 30 from 40 in Q4 2010 due to a lower BOI score for selling prices. The price of the OPEC basket averaged USD 88.50 per barrel in December; the highest monthly average in two years. These oil price highs have led respondents to move more to a prediction of stable prices at these levels as opposed to continuing increases. The BOI score for Level of Selling Prices is 25 in Q1 2011 compared to 63 in the previous quarter. Nearly half of the businesses surveyed expect prices to remain unchanged in Q1 2011 while 38% anticipate an increase. The Net Profits expectations of the sector respondents have improved; the BOI for which is recorded at 50 as against 18 in the last quarter. The BOI for Number of Employees has increased to 18 in Q1 2011 from 15 in the fourth quarter of 2010.

Non hydrocarbon Sector

The survey records an increase of 22 points in the composite index for the non-hydrocarbon sector moving it up to 61; the highest level since Q4 2008 when at the end of that quarter the global recession took hold and business sentiments plummeted.

Qatar’s overall business sentiments for Q1 2011 reflect the fast pace of growth of the economy. The combination of rebound in commodity prices, revival in global markets and recovery in world trade has put business confidence on an upward track. In Q4 2010 survey respondents were somewhat cautious owing to the uncertain global recovery with the USA engaging in QE2, the Euro zone debt crisis boiling and a currency war threatening. However, buoyancy in oil prices in the last quarter in conjunction with strong domestic growth has brought about a surge in sales and profits optimism in the New Year. The strength of business optimism in these key areas is also driving expectations for new orders and employment as firms anticipate an improvement in order books and take on new staff to meet the expected demand.

The BOI for the Volume of Sales parameter has increased by 16 points to 76 in Q1 2011, while the BOI for Net profits has gone up by 18 points to 76. The BOI score for new orders stands at 72 surging from the previous quarter’s reading of 18. At 59, the BOI for Number of Employees has increased by 21 points over the Q4 2010 figure.

Scoring 48 points the BOI for Level of Stocks remains almost unchanged from the Q4 2010 score of 49; still suggesting strong optimism. 57% of firms anticipate a need to replenish stocks. The BOI for Level of Selling Prices is recorded at 20, a marginal drop of 2 points from the score of 22 in Q4 2010. Inflation is expected to remain subdued as rents, which carry the maximum weight in the CPI basket, are expected to remain low.

Factors Impacting Business

Raw material costs continue to be the top concern for non-hydrocarbon firms in Q1 2011: 43% of the respondents have cited it as the leading concern. Availability of skilled labor is the second most important factor for respondents with 23% citing it accordingly. Availability of finance is the biggest concern for 20% of the respondents while property prices are the largest factor impacting business for 14% of respondents.

Business expansion plans for Q1 2011 are similar to that in Q4 2010. 41% of the non-hydrocarbon companies have said that they would invest to expand in Q1; the same number as in Q4. In Q4 45% of respondents said that they would not invest in expansion and this number has decreased to 24% in Q1 2011.

In the oil & gas segment project delays are the chief factor impacting business while finding skilled labor is also an important issue.

Shashank Srivastava, Acting CEO of the Qatar Financial Centre Authority said:

“We are very encouraged at the strength of this quarter’s findings.  The optimism levels amongst Qatar’s non hydrocarbon business community are as high as it has been in the last nine quarters.  Despite the delicate global financial system, characterized by fragile corporate and sovereign balance sheets, 48% of the respondents in the Qatari Finance, Real Estate and Business Services sector say that they will invest in business expansion during the first quarter of 2011. Increasingly, more businesses are recognizing that Qatar provides a solid platform for sustainable growth.”

Business optimism indices are commonly used to get a better understanding of the growth expectations of the business community and its response to current developments within an economy. Issued quarterly, the D&B’s Business Optimism Index for Qatar is based on an extensive survey conducted amongst the Qatari business community. The next Business Optimism Index for Qatar will be released in April 2011.

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