Business optimism survey points to Saudi economy's resiliance in face of the global financial crisis

• Saudi Business upbeat on Sales Volumes and Profit Outlook
• Inflationary pressures expected to stabilize
• Saudi economy resilient in face of the global economic slowdown

The D&B Business Optimism Index (BOI) is a measure of business confidence in an economy. Released quarterly, it is based on a business sentiment survey that is designed to capture business expectations. It is one of the most effective ways to track how the business community perceives the business environment, and where they see their business moving.

The Business Optimism Survey for Q1 2009 was conducted in November 2008 amidst a scenario of an economic slowdown in most of the developed countries. However, the BOI survey shows that while business optimism in Saudi Arabia is subdued for Q109, it is positive. The domestic demand levels are expected to remain robust which will help in minimizing the impact of external shocks to a great extent. The study indicates that 59% of all the respondents surveyed in the non hydrocarbon sector expect an increase in Volume of Sales during next quarter and 61% foresee a rise in Net Profits. In the hydro carbon sector as well 55% of the business units are expecting an increase in the profits.

The businesses seem to be divided in their perception of the global financial crisis. 51% of companies anticipate some impact of the financial crisis on their business while 41% feel that their companies will not face the brunt of the financial upheaval. The services sector, consisting of financial, insurance, real estate and other business services firms, is most optimistic about managing the fallout of the crisis. The BOI also indicates some concerns among the business units regarding prices of raw material, availability of skilled labor, competition etc. 59% of the business units cite rising prices of raw materials as their biggest business concern .Availability of skilled labor supply also emerges as a significant business concern.

While inflation remains a key business concern, the results of BOI survey indicate that there are signs of easing inflationary pressure. Commenting on these findings Dr. Said Al-Shaikh, Chief Economist at NCB states, "KSA has been witnessing significant inflation in the past few years due to abundant liquidity arising out of oil export revenues, strong domestic demand, rising commodity and food prices, and a weak US Dollar. The global economic slowdown has caused food and commodity prices to retreat, and the BOI survey indicates that almost a third of businesses in the non-hydrocarbon sector expect their selling prices to fall, and 35% do not expect any change in the level of their selling prices. Expectations indicate that we will see a very gradual easing of inflationary pressure in the next quarter."

Commenting on the overall findings of the survey Rajesh Mirchandani, CEO of Dun & Bradstreet South Asia Middle East states, "Even though the global economic slowdown will impact Saudi Arabia's business community, the effect will not be as vast as in the Western economies. The results of the BOI survey reflect the resilience of the Saudi economy in face of the global financial crisis. The BOI survey shows that backed by high sales and profit expectations, 41% of companies polled have said that expenditure on business expansion will be their leading investment outlay during the next quarter. An additional 46% of business units also plan to invest in technology and machinery, signaling that the Saudi business community has got strength to withstand the short term turbulence in the global economy"

As the latest addition to D&B's global series of Business Optimism Indexes, the Business Optimism Index on KSA, done in association with The National Commercial Bank, will be issued on a quarterly basis and will be one of the most effective ways to keep track of where businesses think the Saudi economy is moving. The next Business Optimism Index on Saudi Arabia will be released in April 2009.