Business confidence in GCC - high but trend is downward

From a base Index level of 100 in Q1 2007, the Index stands at 96.8 twelve months later. This decline has been consistent in each quarter over the past year.

The main factors cited for the decline in outlook are high inflation and the weakness of the US Dollar. The continuing high price of oil is now perceived to be having a negative impact on business.

Inflation in particular is contributing to the decline in business sentiment, with the proportion of businesses claiming a negative impact rising from 36% in Q1 2007 to 61% in the first quarter of this year.

But despite these warning signals, the overwhelming tone of the Index is positive:
- 65% are optimistic about growing their revenues
- 28% expect their turnover to increase by more than 15% in 2008, with a further 34% predicting an increase of between 5-15% compared to last year
- Over half (54%) expect to increase their staff numbers in 2008


Keith Bradley, Regional Head of Commercial Banking, commented:

"It is important to keep these figures in perspective. The slowing of the major western economies, the credit crunch, and the fall in global stock markets inevitably affects the outlook and sentiment of business people. However, the Gulf's economies continue to expand, and business people's outlook continues to be broadly positive. The majority are expecting very healthy growth and expansion in 2008. This mirrors what our customers are telling us, with growth and expansion being the dominant themes".

On the much-discussed issue of regional currencies, the number of businesses expecting a revaluation of their local currency has fallen from 59% in Q4 2007 to 41% today.

Around half of all business people (48%) believe a revaluation would have a positive impact on their business.

Antoine Cahuzac, CEO of Global Banking for HSBC in the Middle East, added: "This general optimism runs right through the region's economy, from the largest institution to the smallest start up business. We believe that the confidence is underpinned by sound fundamentals, and the increasing levels of activity we are seeing among our corporate and institutional clients certainly supports this".

The first quarter Index of 2008 surveyed 1,464 respondents from all six GCC countries, with the majority coming from Saudi Arabia and the UAE.