With its rich natural resources, Saudi Arabia is maintaining its progress in both the oil and nonoil sectors. "The Kingdom is, in fact, aiming for a 10 percent global share in petrochemicals," Said Al-Shaikh, senior vice president and group chief economist at the National Commercial Bank (NCB ) said during the release of Saudi Arabia Business Optimism Index (BOI) for Q3, 2012 at the NCB headquarters in Jeddah yesterday. The Kingdom's petrochemical industry has become a strategic one with large exports and was emerging as the second largest after oil, he told Arab News.
The BOI survey for the quarter, which is the joint effort of the Dun & Bradstreet South Asia Middle East Ltd. (D&B) and NCB , shows that despite aggravated global risks moderating the strength of optimism slightly, businesses in the Kingdom remain resilient for Q3, 2012.
The survey highlights:
The composite BOI for the non-hydrocarbon sector stands at 37, compared to 52 points in Q2 2012; all non-hydrocarbon sectors reveal a drop in optimism levels because of expectations of slowdown in economic activity due to summer vacations and uncertain global conditions; and composite BOI for the hydrocarbon sector drops to 23 points with selling prices weighing high.
The survey for the BOI for Q3, 2012 was conducted in July 2012, a time when the outlook for the global economy had become highly uncertain. After a gradual deceleration during 2011, especially in Q4, global growth had started to show some signs of dynamism in Q1 2012. This was due to stronger growth in Asia, including Japan as well as South America and a modest but sustained growth n the United States.
In Europe, investor sentiment was calmed by the Greek debt swap as well as the 1 trillion-euro worth of long-term refinancing operations provided by the European Central Bank. Additionally, monetary policy easing in some developing countries contributed to a firming of real economic activity in many countries.
However, this momentum seems to be facing and the global economy now faces significant challenges in the near term, with an expectation to grow by 3.5 percent this year compared to 3.9 percent in 2011, as per IMF estimates.
The European debt crisis problems still persist and the second quarter saw developments that added fuel to the fire. Surveys of both the manufacturing and service sectors in the euro zone showed contraction in activity for all three months of the second quarter, while the unemployment rate stood at an all-time high of 11.1 percent in May 2012. Deteriorating conditions in the euro zone will have an even greater impact on trade and credit flows internationally. In the US and China, growth is forecast to be slower in 2012. As several debt-ridden advanced economies are cutting back on spending, they are creating headwinds for the fast growing emerging economies.
The survey shows that the expectations toward the overall business environment in Saudi Arabia have improved in Q3, 2012, compared to the previous quarter. 45 percent of the respondents in the non-hydrocarbon sector have said that they do not expect any negative factors to influence their business operations in Q3 2012, as compared to 33 percent in Q2, 2012. Around 30 percent of the respondents who have cited adverse business environment as a key concern, attribute factors such as the global economic downturn, euro zone crisis and currency fluctuations to have an impact on their business operations in Q3 2012. While 11 percent of respondent businesses were found concerned about availability of skilled labor, another 3 percent reflected concerns about availability of finance.
Al-Shaikh said: "As the signs of dynamism in global economic growth seems to be fading away, 30 percent of the firms surveyed in the Kingdom indicated that the business environment due to the global economy will impact their business operations in Q3. Consequently, the Kingdom's BOI for the non-hydrocarbon and hydrocarbon sectors have weakened in Q3 compared to Q2. While the substantial group in oil prices weighed heavily on the selling price parameter and in turn on the BOI of the hydrocarbon sector, the lower reading of sales volume on expectations of weaken demand in the holiday season has contributed to the drop in the non-hydrocarbon sector's BOI in Q3.
Asked about the impact of the recently announced Saudi mortgage law, Al-Shaikh said: "The mortgage law will spur demand for land, as its major beneficiaries belonging to middle and high income groups will pursue their housing plans. The SR 250 billion plan announced by the Ministry of Housing will benefit low-income groups with 500,000 housing units.