Regional crisis 'not affecting Saudi Arabia's economy'

The regional crisis has not affected Saudi Arabia's economy so far as its GDP (gross domestic product) is expected to rise 4 percent in real terms this year, according to Said Al-Shaikh, senior vice president and chief economist of the National Commercial Bank (NCB).
Releasing the D&B Business Optimism Index (BOI) survey for Saudi Arabia for Q3 on Tuesday, Al-Shaikh said: “The positive business outlook is feeding more enthusiasm with companies remaining steady for investment in business expansion. The GDP fall in 2013 compared to 7.8 percent in 2012 is due to lesser oil production.”
In 2012, Saudi Arabia's average oil production was 9.9 million barrels per day (bpd). In 2013, the oil production is between 9.5 million bpd and 9.6 million bpd.
However, “If Syria is attacked, oil prices will reach $125 per barrel depending on the magnitude of the attack and it also depends on how long it prolongs,” Al-Shaikh said.
Oil prices recently reached between $115 and $117 per barrel due to expectations of an attack on Syria but prices came down after some European countries showed reluctance.
Al-Shaikh expects much more volatility in the Saudi stock market. He said stock prices would drop if regional crisis prolongs further. The Tadawul All-Share Index fell 1.29 percent to 7,831.76 points on Tuesday.
Al-Shaikh said inflation in Saudi Arabia is moderating. “Due to strengthening of the dollar this year, imported inflation dropped significantly. There is also an increase in local capacity, which will help moderate the level of inflation in the range of 3.7 percent to 3.8 percent in 2013,” he added.
Investors rushed to park their assets in the dollar, awaiting uncertainty to clear off, allowing the US currency to score large gains against its peers after it was weakened earlier by investors leaving to avoid large volatility and event risk.
The BOI survey shows Saudi business community displays mixed sentiments in Q3, however year-on-year (Y-o-Y) optimism levels increase for both hydrocarbon and non-hydrocarbon sectors.
The composite BOI for the hydrocarbon sector gained 8 points to stand at 39, up from 31 in Q2, 2013, although the composite BOI for the non-hydrocarbon sector witnessed a cyclical decline of 6 points to 49 from 55 in Q2, 2013. Yet Y-o-Y comparison reveals higher BOI levels in Q3, 2013, compared to the same period in 2012.
Within the non-hydrocarbon sector, the survey showed transportation, construction & manufacturing sectors have higher optimism levels for Q3, 2013 compared with other sectors.
According to the BOI survey, petrochemical manufacturing firms have higher optimism compared with non-petrochemical manufacturing units.
The outlook of hotels and restaurants has declined by 19 points reaching 31 points while wholesale and retail trading firms hold a stable outlook for the coming quarter.
Majority of the respondents in the non-hydrocarbon sector (61 percent) and hydrocarbon sector (67 percent) do not foresee any negative factors, which could impact business operations in Q3.
The survey said investment outlook of Saudi businesses remains steady with a majority (51 percent) of respondents planning to invest in business expansion.
The index for the new employees’ parameter has gained 6 points to 46 in Q3 from 40 in the previous quarter. A majority (66 percent) of the businesses do not see any negative factors impacting businesses in Q3, which is a steep increase from the previous quarter's tally of 48 percent.
Al-Shaikh said: "The BOI of Saudi Arabia's non-hydrocarbon sector has weakened in Q3, 2013, compared to the previous quarter, yet it showed an improvement on a yearly basis."
However, he said: “Despite the weaker demand outlook, there is still a widespread expectation of a rise in selling prices in the Q3. Moreover, reflecting business confidence, 61 percent of the companies do not anticipate any negative factors to affect their businesses operations in Q3, 2013.”
Al-Shaikh said the survey results reflect that a majority 51 percent have plans to invest in business expansion, while the biggest concern of businesses is still the availability of skilled labor, followed by government regulations.
Construction and business service sectors in the Kingdom are most optimistic on hiring, while transportation firms have high optimism on profitability, according to estimates released by the BOI survey.
Prashant Kumar, associate director, Dun and Bradstreet South Asia Middle East Ltd., said in a statement: “The BOI survey this quarter displays moderation in the non-hydrocarbon sector optimism and improvement in hydrocarbon sector outlook. The composite BOI for the non-hydrocarbon sector for Q3, 2013, moderated 6 points to 49 from the previous quarter's score of 55. Despite the moderate cyclical drop, the score is higher compared to the same period 2012. On the other hand, the composite score for the hydrocarbon sector has turned up 8 points to 39 in Q3, 2013 from 31 in Q2, 2013 as all parameters witnessed positive trends.”
Dun & Bradstreet South Asia Middle East Ltd. (D&B) in association with the NCB conducted the Business Optimism Index for Q3 in June with inputs from 500 companies in the Kingdom across all key sectors of the Saudi economy.