Index stabilizes, but downward trend continues, says HSBC survey

The overall Index has moved from 70.3 in the final quarter of 2008 to 69.7 in the first quarter of 2009, a continuing downward trend, but far less than the 22 point fall seen in Q4 last year.

Business people are in no doubt as to the cause of their lack of confidence: an overwhelming 42% cite 'the economy generally' as the greatest challenge to their business this year. As to the duration of the slowdown, 28% believe things will not turn around for a year, while 20% feel it will be two years before circumstances improve, and a further 20% believe it will take longer than two years for the economy to recover.

In a new departure, the survey has measured responses by sector, with some sharp differences in outlook and responses to the slowdown. When asked about investment budgets in 2009, half of businesses in the automotive and retail sectors said it would shrink; while in the consumer goods, industrials and banking sectors over half foresee growth in investments.

It is the same story when asked about growth or maintenance of margins, with 36% and 40% of the Construction and Retail sectors respectively predicting margin erosion in the next quarter. The same two sectors are gloomiest about meeting their financial targets this year.

"Overall, the results do not come as a surprise," says Keith Bradley, Head of Commercial Banking for HSBC Middle East. "The region is as much affected by the global economic slowdown as anywhere else in the world, and the survey confirms that business people became aware of this with a shock in Q4 2008, and that the global economy continues to impact their business in 2009."

Other highlights from the survey:

• A surprisingly high percentage - at least one in four - responded 'Don't Know' when asked to predict their profits, turnover, and investment budgets in 2009, indicating the depth of uncertainty that exists among businesses.
• The consumer goods industry plans to invest more in 2009 than any other sector, with 35% predicting growth in investment, compared to just 14% of retailers.
• Kuwait, perhaps surprisingly given recent events there, has shown an increase in confidence levels in Q1 2009.

"The results of the first quarter validate the evidence we have from our customers,"

said Tim Reid, Co-Head of Global Banking at HSBC.

"Their businesses have rapidly and dramatically slowed down, and they are adjusting their forecasts, plans and outlooks accordingly. I think it also shows that there is a new sense of realism and a determination to get through these hard times, from private and public sector, and across the board from small companies to multi-nationals," he added.